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Daniel Richards - MENA Economist
Published Date: 13 October 2021
The IMF has downgraded its global growth forecast by 0.1pp to 5.9% in 2021 and kept its 2022 growth forecast unchanged at 4.9%. The slightly lower forecast for this year reflects slower growth prospects for low income developing economies on the back of worsening pandemic effects, as well as the impact of supply chain disruptions on developed economies’ growth this year. The Fund noted that there is increased uncertainty about how quickly the pandemic can be overcome, with the risk of new variants emerging. There is also less room for maneuver in terms of policy responses. In the GCC, growth for oil exporting economies is expected to accelerate next year with the UAE forecast to grow 3.0% next year from an estimated 2.2% in 2021. We expect GDP growth in the UAE next year to be significantly higher at 4.6% on the back of a sharp increase in oil sector growth and 4.0% non-oil sector growth. The IMF expects the Saudi economy to grow 2.8% this year and 4.8% in 2022, also lower than our forecast of 5.7%.
The UAE approved a federal government budget of AED 58.9bn for 2022 through 2026, broadly in line with the 2021 budget. There were no figures provided for budget revenue or the budget balance, although historically the federal budget has been close to balanced. The federal government recently raised USD 4bn in bond issuances, which should be more than sufficient to cover the estimated budget shortfall of USS 1.3bn in 2021 as well as pre-fund a possible 2022 shortfall. The federal government budget amounts to around 15% of consolidated UAE spending which includes all the emirates and focuses on social benefits and development spending across the country including education, healthcare and housing for UAE nationals.
The UAE’s annual inflation rate moved back into positive territory in August for the first time since December 2018, with CPI rising 0.4% m/m and 0.5% y/y. Transport price increases were a key driver of annual inflation, up 12.5% y/y, reflecting higher petrol prices. Food and housing continue to offset higher services costs in the UAE. We expect CPI to average 0% this year, accelerating to 1.5% in 2022.
Job openings in the UK rose to a record high of 1.2mn in September according to labour market data released yesterday. The number of people on payrolls rose by 207,000 to a record 29.2mn, though at 75.2% of 16–64-year-olds, employment levels over the three months to July remained 1.3pp lower than prior to the pandemic (payroll figures double count some people working more than one job and exclude the self-employed). Headline unemployment in the UK fell from 4.9% to 4.5% over the quarter, though there remained a sizeable number of people still furloughed in July, meaning the figure could tick higher again next quarter. The ratio of unemployed people to open positions in the UK is at a multi-decade low (a similar situation to the US, where the latest JOLTS data for August released yesterday showed 10.4mn openings, a slight dip but still near record levels). The UK labour market tightness is giving workers more pricing power, and average weekly earnings over the quarter were 7.2% higher y/y – though this was a deceleration from the previous 8.3% as base effects faded.
The Germany economy also continues to be disrupted by supply issues, though driven more by shortages of raw materials and input goods than labour. The ZEW surveys fell short of expectations this month, with the expectations measure falling from 26.5 to 22.3, short of projections of 23.5, while the current situation survey fell from 31.9 to just 21.6, far short of consensus expectations of 28.0. High shipping costs and rising prices for a range of goods needed for Germany’s manufacturing sector have weighed on output this year, and the IMF cut its 2021 growth forecast from 3.6% to 3.1%.
India’s CPI inflation fell to 4.4% in September, down from 5.3% the previous month. While the slowdown was anticipated, it beat estimates of 4.5%, and reaffirms our view that the RBI is unlikely to hike rates in the near term given its professed accommodative stance, despite concerns over tightening in developed markets. Industrial production meanwhile expanded by 11.9% m/m in August, up from 11.5% in July and faster than consensus projections of 11.6%.
10:00 UK industrial production August % m/m. Forecast: 0.2%
16:30 US CPI inflation, September % m/m. Forecast: 0.3%
22:00 US FOMC minutes for September meeting released
US consumer confidence bucks covid worries
Activity in Eurozone dips at start of Q4
IMF publishes regional growth projections