According to a key indicator released on Tuesday, the slump in oil prices affecting growth in private sectors in the two biggest Arab economies.
The Emirates NBD Purchasing Managers’ Index (PMI) for Saudi Arabia dropped for a second month in a row to 55.7 in October, the lowest level since the survey began in 2009, driven by weaker expansion in new business. The same measure for the United Arab Emirates (UAE) fell to 54 from 56 in September, the lowest since April 2013, the Dubai-based bank said. Readings above 50 still signal expansion, while those below indicate contraction.
Oil prices have dropped more than 40 per cent over the last year, prompting some governments in the six-nation Gulf Cooperation Council to plan spending cuts and curb or eliminate fuel subsidies. Non-oil economic growth in the region will slow to 3.8 per cent this year from 5.5 per cent in 2014, according to International Monetary Fund estimates.
In Egypt, business conditions also worsened at the quickest pace since February, PMI data showed, as a shortage in power supply and foreign currency continued to undermine output.
For Saudi Arabia, the biggest Arab economy, the slower growth in private industries last month is “unsurprising in the context of sharply lower oil revenues and tighter liquidity conditions,” Khatija Haque, head of Middle East and North Africa research at Emirates NBD, wrote. “However, the rate of expansion in the non-oil sector is still relatively robust.”
The Saudi government is already searching for budget savings, is contemplating project delays and has sold bonds for the first time since 2007. The country relies on oil for at least 80 per cent of its revenue. While rates of growth in output, new orders and employment all eased, “the sector remained firmly in expansion territory overall,” Emirates NBD said.