02 August 2023
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UAE grows 3.8% in Q1

By Edward Bell

The UAE’s economy expanded by 3.8% in Q1 2023 relative to the first quarter of 2022. Headline GDP hit AED 418.3bn according to an estimate from the Federal Centre for Competitiveness and Statistics. Non-oil GDP increased by 4.5% which would seem to align with the strong PMI data recorded so far this year. Transport and storage showed the strongest levels of growth, up 11% in Q1 while construction added 9%. Both headline and non-oil GDP growth have slowed compared to Q1 2022, as we expected, on the back of slower global growth and higher interest rates. Oil production cuts will further weigh on growth in H2. For the full year 2023, we expect non-oil growth to slow to 5% from 7.2% in 2022, with headline GDP slowing to 2.9% from 7.9% last year.

Fitch lowered their sovereign rating on the US government to ‘AA+’ from the top tier ‘AAA’ rating, citing an “expected fiscal deterioration over the next several years” and an “erosion of governance” in relation to the repeated debt ceiling stand-offs. Fitch estimates the US government will record a deficits of 6.3% of GDP in 2023, up from 3.7% las year while state and local governments will also run a deficit. Looking forward, the rating agency expects the deficit to worsen while the US also endures higher interest costs. S&P cut their rating on the US government to ‘AA+’ in 2011 while Moody’s still rates the US at ‘Aaa’.

The ISM survey of US manufacturing continues to point to contracting activity in the sector as the index was below the neutral 50 level for the ninth month in a row. The July estimate came in at 46.4, marginally higher than a month earlier but still remaining solidly negative. According to the employment sub-index, employment in the sector dropped in July with the level of 44 its lowest since July 2020.

Job openings in the US in June fell to their lowest level since April 2021 which would indicate demand for labour is cooling. The JOLTS report estimated the total number of job openings at 9.6m in June though layoffs are also relatively low. The data from the JOLTS chimed with the ISM where manufacturing was the principal source of the drop in labour demand. The quits rate fell to 2.4%, its lowest since February 2021 as employers show more reticence about voluntarily leaving their jobs.

Turkey’s manufacturing PMI fell to 49.9 for July according to S&P Global. That represents the first drop below the neutral 50 level this year and is the lowest read for the indicator since December 2022. New orders fell to 48.4 from barely above 50 a month earlier. Turkey’s economy will now need to absorb the impact of tighter monetary policy—the central bank under new leadership hiked rates to 17.5% in June, a 250bps hike.

Today’s Economic Data and Events

  • 16:15 US ADP Employment change July: forecast 190k

Fixed Income

  • US Treasuries generally shrugged off the impact of the Fitch downgrade to the US sovereign rating with yields on the 2yr UST closing the day higher by a bit more than 2bps at 4.9016% while the 10yr yield added 6bps to 4.023%. The move from Fitch may just codify what many investors already discount in the scale of the US deficit and while the debt ceiling standoffs create noise in markets, they are generally not expected to result in a default.
  • European bonds were weaker overnight with bund yields up 6bps at 2.551% while gilt yields added 9bps to 4.391% ahead of the Bank of England later this week.
  • EM bonds closed a little softer overnight with Turkey 10yr local currency yields adding 2bps to 17.91% while South African 10yrs added 8bps to 11.569%.
  • PIF will issue a USD sukuk this year, potentially raising as much as USD 3bn according to press reports.


  • Currencies swung toward the dollar overnight though the impact from the sovereign downgrade of the US seemed relatively limited. EURUSD fell by 0.1% overnight close at 1.0984 while GBPUSD recorded a wider move of 0.5% down to 1.2777. USDJPY extended its move higher by 0.7% to 143.34.
  • Commodity currencies look to have been sunk by the RBA’s reticence to tighten policy at its latest rate setting meeting. AUDUSD fell by 1.6% to 0.6613 while NZDUSD fell nearly 1% to 0.6149 and USDCAD added 0.7% to 1.3281.


  • The recent strength in global equity markets ebbed yesterday, as weak corporate earnings results weighed on sentiment. Japan’s Nikkei was a bright spot at the start of the day as it added 0.9%, but the Hang Seng dropped 0.3% and the Shanghai Composite closed flat.
  • The weakness continued in Europe as all the major indices ended the day lower. The UK’s FTSE 100 dropped 0.4% while the composite European STOXX 600 closed down 0.9%.
  • In the US, the Dow Jones closed 0.2% higher, but the S&P 500 (0.3%) and the NASDAQ (0.4%) both ended the day lower.
  • Locally, the DFM added 0.4% but the ADX gained 0.1%. In Saudi Arabia the Tadawul lost 0.5%.


  • Oil prices edged lower overnight with no material catalyst. Brent futures fell by 0.8% to USD 84.91/b while WTI closed lower by 0.5% to USD 81.37/b. The API reported a substantial draw in US crude inventories of more than 15m bbl last week along with draws in gasoline and distillate stockpiles.
  • OPEC production dropped by 900k b/d in July according to Bloomberg estimates. Saudi Arabia took 810k b/d off the market as it made voluntary cuts on top of its OPEC+ commitments while production from the UAE increased by 20k b/d.

Written By

Edward Bell Head of Market Economics

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