Dubai sets out five social and economic priorities for 2023

Sheikh Mohammed bin Rashid, ruler of Dubai and prime minister of the UAE, outlined five social and economic priorities for the country in 2023. Sheikh Mohammed said the country would work on national identity, the environment and sustainability, education, Emiratisation and expanding economic links with other nations. The UAE signed several comprehensive economic partnership agreements in the last few years, including with India, Indonesia and Israel and expanding and deepening trading relationships looks set to remain an economic priority this year. The UAE also holds COP 28 in Dubai in November-December and highlighting the country’s environmental targets will likely also receive a boost this year.

Retail fuel prices in the UAE will drop in January in line with lower prices for crude oil in December compared with a month earlier. The cost of 95 octane fuel will drop to AED 2.67/litre from AED 3.18/litre a month earlier. Prices for January 2023 will be 5.5% higher than a year ago, the slowest pace of price increase since March 2021 when prices were still falling year/year. Energy costs were a major contributor to higher overall prices in 2022 with CPI inflation in Dubai at an average of 4.6% in the 11 months to November compared with deflation of 2.4% in the same period in 2021.

Dubai has announced that it will scrap a 30% tax on alcohol sales in the emirate which, if passed on to consumers, could boost the competitiveness of the tourism and hospitality industries in what is likely to be a more challenging macro environment this year. In the 2022 budget, tax revenue accounted for about 40% of total budget revenue for the government of Dubai, but this includes VAT as well as customs and other taxes. The lost income from the alcohol tax may be offset by the introduction of corporate tax from the middle of this year, as well as the lower threshold at which customs duties kick in for consumers.

Oman has approved a 2023 budget with a deficit of OMR 1.3bn, much lower than the OMR 1.6bn surplus expected. Revenues are projected at just over OMR 10bn this year, down from OMR 14.2bn achieved in 2022. The government’s revenue projections are based on an oil price forecast of USD 55/b, well below our USD 105/b expectation. Expenses have been reduced by over 7.5% in 2023 to just OMR 11.35bn.  The ministry of finance indicated that a surplus of OMR 1.15bn was recorded in 2022, lower than our forecast of OMR 1.5bn, as revenues have come in slightly lower than we had estimated.

India’s manufacturing PMI for December came in at 57.8, according to S&P Global. That was an increase on the 55.7 recorded a month earlier and was the best performance for industry since October 2020. Both new orders and output were up on the prior month and manufacturing overall held up very strongly in India compared with 2021 when the country was hit by a large Covid-19 wave. While the data from the manufacturing sector is positive, employment numbers are showing signs of weakening: headline unemployment rose to 8.3% in December compared with 8% a month earlier.

China’s Caixin manufacturing PMI dipped to 49 in December, down from 49.4 a month earlier. That represented five months in a row below the 50 level that delineates expansion from contraction. Output did tick higher, up to 48.7 from 47.4, but remained in the negative. While China is unwinding its stringent Covid-19 restrictions, the virus is spreading at a large scale across the country, disrupting overall activity.

Today’s Economic Data and Events

• 11:00 TU CPI y/y Dec: forecast 66.75%
• 12:55 GE Unemployment Dec: forecast 5.6%
• 17:00 GE CPI y/y Dec: Forecast 9%

Fixed Income

• US Treasury markets stayed closed overnight as many markets observed the New Year holiday. Japan is also closed for today, limiting early trade in US Treasuries. Bund markets traded, however, with German bonds strengthening on the first trading day of the year. Yields on the 2yr Schatz settled at 2.641%, down 7bps, while the 10yr bund yield dropped around 13bps to 2.428%.

FX

• Currency markets started the year on a softer footing as weak data coming out of China weighed on risk appetite. EURUSD dropped almost 0.4% overnight to closet at 1.0667 while GBPUSD fell by 0.3% to 1.2046. USDJPY moved in favour of the yen as haven bids remained intact with the pair closing at 130.8, down 0.2%.
• Commodity currencies closed weaker as a rule with AUDUSD down 0.2% at 0.6802, USDCAD rising by 0.1% to 1.3573 against the loonie and NZDUSD dropping by 0.5% to 0.6317.

Equities

• Many global equity markets were closed yesterday, including those in the US and UK and many in Asia. Those that were open were broadly positive; in Europe, the DAX and the CAC added 1.1% and 1.9% respectively.
• Locally, the ADX gained 0.4% and the Tadawul closed up 0.3%, but the DFM dropped 0.2%. Egypt’s EGX30 ended the day 2.5% higher while Turkey’s Borsa Istanbul 100 added 2.8%.  

Commodities

• Oil markets didn’t trade at the start of the year but have opened on a weaker footing in early trading today. Brent futures are down 0.9% at USD 85.11/b while WTI has moved back below USD 80/b, down 0.8% at USD 79.59/b. Negativity around China’s data as it emerges from strict Covid rules could act as a negative on oil prices in the near term.

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