Saudi Arabia and UAE enjoying economic growth momentum

(MENAFN- Arab News) Jeddah: in terms of economic growth in the current quarter saudi arabia and the uae are witnessing growth momentum compared to other mena countries.

this is being highlighted in the latest credit agricole private banking research report 'macro comment — eastern promises: mena update'.

paul wetterwald chief economist credit agricole private banking said: 'there is no change in trends in the purchasing managers indices (pmis) over the last two months. the may data almost mimicked the april figures as on one side saudi arabia and uae pmis remained largely above the 50 expansion/contraction frontier and on the other side struggling egypt and lebanon remained in contractionary mood posting 48.7 and 48 marks."

wetterwald said: 'this latest data have thereby confirmed that saudi arabia and the uae enjoy both growth momentum and similar rates of inflation."

in the uae the 57.3 may pmi headline figure is all the more positive that new orders were also on the rise.

this is also true of new export business which was linked to a pick-up in economic activity in neighboring countries by the companies surveyed.

inflation remained subdued at 2.1 percent year-on-year in the uae and 3 percent in dubai in april. lower selling prices despite increased input costs reported in may should comfort this moderation.

while in saudi arabia at 57 the may headline pmi (non-oil private sector economy) drifted lower to its march level (from 58.5 in april). this still bright expansionary pace was accompanied by increases in input costs and as in the uae case by lower selling prices. at the cpi level inflation rebounded slightly to +2.7 percent year-on-year in april and food prices contribution could maintain it on a gentle upward slope.

paul wetterwald said: 'pmis indices are diffusion indices which report improvement or deterioration (of activity) on a sequential monthly basis. it means that it compares the current situation with the one prevailing the month before not with the one at a past reference date. however using average values can sometimes be useful when it comes to forecast hard data as gdp. we can say that this is a by-product of the pmis surveys but not a semantically correct use of the survey's answers."

in regard to mena countries without pmis jordan turns out to be an interesting example. identifying countries with high pmi within the mena area let jordan out of scope. this is due to the lack of such survey in jordan but does it mean that growth is low over there as displayed in the graph below nominal gdp growth rate was around 12 percent per annum on average since 2002.

paul wetterwald commented: 'based on recent monthly or quarterly available data we expect jordanian nominal growth to be well below this average in 2014. this will be partly due to the positive but low single-digit real growth rate and partly due to the benign inflation outlook."

wetterwald said: 'as we all know inflation can be measured through various indices: gdp deflator measures the general price level of all goods and services produced domestically including consumption intermediate and capital goods but does not count for the price of imported goods and services; consumer price index measures the general price level of a specified basket of the goods and services on which a consumer spends his income."

jordanian april cpi was +3.2 percent year-on-year i.e. significantly below the +4.5 percent 2002-2014 average.

this moderate outcome is partly explained by the fact that the jordanian monetary policy framework is an exchange rate anchor vis-a-vis the us dollar.

given that food items weight 36.65 percent of the cpi basket this allowed the food price evolution expressed in us dollar to exert a downward impact on the headline cpi.

however this favorable impact is about to end.

taking into account the jordanian dinar exchange rate and the us dollar food price variation allow us to compute a yearly rate of change of the food price in the local currency and then to compare it with the consumer price inflation.

assuming that the current usd food price and exchange rate remain the same until december 2014 results in a yearly food price change which will be slightly higher than the most recent change.