Regional PMIs dip in January

We recognize that external events in January, including the heightened tension between the US and Iran in the first two weeks of last month, as well as the outbreak of the coronavirus in China may have had a negative impact on business activity across the region.  Uncertainty about the extent of disruption to travel, the impact on Chinese demand and downside risks to economic growth remains high. 

UAE

The UAE’s PMI moved into contraction territory in January for the first time since August 2009, slipping to 49.3 as new orders and employment declined on average compared to December.  Output was unchanged (50.0) last month, the lowest reading since January 2010.  New orders have declined for two months out of the last three, even as export orders increased in January, indicating that the weakness is in domestic rather than external demand.  While businesses remain optimistic about their output in 12 months’ time (ie during Expo 2020), the degree of optimism has softened since November. 

Saudi Arabia

The Saudi PMI declined to 54.9 in January from 56.9 in December, the lowest reading in more than a year.  Output increased at a similar rate to December but new order growth slowed, on the back of the second consecutive monthly decline in new export orders.  Nevertheless, domestic demand in the kingdom appears to be holding up well.  The employment index declined to 50.2 in January, signaling almost no change in private sector employment last month, while staff costs declined slightly.  Business optimism was the weakest since August 2018, although the majority of firms expect their output to be higher or the same than it is today. 

Egypt

Egypt’s PMI fell to just 46.0 in January, the lowest level since early 2017, shortly after the country began its IMF reform programme. The decline is in common with dips seen in Saudi Arabia and the UAE, likely affected by the uncertainty seen throughout the month which will have weighed on Egypt’s key tourism and transport and logistics sectors. Output was particularly weak, with nearly a quarter of respondents reporting weaker activity compared with December, but the outlook for the coming months is no more positive given the slowdown we saw in new orders. Supporting our view that the external developments were partly to blame for the decline in the PMI, new export orders declined at the fastest pace since October 2016, just prior to the start of the IMF programme, when a weaker EGP was widely expected

This slowdown will be a challenge to Egypt’s economy in 2020. The non-oil private sector has lagged in terms of its growth recovery, but recent communiqués from the Central Bank of Egypt’s monetary policy committee have indicated that the private sector is seeing some green shoots of recovery. Should this be materially derailed then Egypt’s growth may undershoot our expectations.