Economy Continues to Cope With Oil Price Slump, Domestic Problems
The five economies under our coverage in the Middle East and Africa region did not see any noteworthy change in their economic situations during early 2015. Soon after overcoming a long phase of industrial unrest, South Arica faced another crisis in the form of a massive power shortage. The Israeli economy slowed to a more modest pace of growth after its surge in the previous quarter while Egypt continued to benefit from low oil prices and reform initiatives by its government. Not surprisingly, oil exporters UAE and Qatar remained under pressure but both mitigated their problems to a certain extent. While UAE gained from being relatively more diversified than other oil economies, Qatar propped up its economy with a massive dose of public spending.
At a Glance
South Africa: The economy appears to be recovering from last year’s labor problems. According to South Africa’s statistics office, the mining industry, which bore the brunt of the industrial unrest, saw a 15.2 percent jump in output during the fourth quarter. In the first quarter, GDP in the country grew 1.3 percent from the fourth quarter.
Israel: Signaling a strong recovery from the fallout of the Gaza conflict in July-August last year, the Israeli economy expanded at an annualized rate of 7.2 percent in the fourth quarter of 2014. However, preliminary data indicate GDP growth slowed down in the first quarter of 2015.
Egypt: According to the central bank, GDP grew 4.3 percent year-on-year in the fourth quarter of 2014. A consistent improvement in investment, ongoing recovery in the manufacturing sector and increasing tourism activities contributed to GDP growth in the October-December period.
U.A.E.: The IMF cut its 2015 growth forecast for U.A.E. to 3.2 percent from its previous projection of 3.5 percent.
Qatar: Qatar’s GDP grew 6.7 percent in the fourth quarter of 2014 compared to the year-ago period.
SOUTH AFRICA: SIGNS OF RECOVERY FROM LABOR PROBLEMS, BUT POWER SITUATION WORSENS
Until late last year, South Africa was pummeled by long-drawn strikes in its all-important mining sector, which hurt not just mining revenues but also the national output. The good news is that the economy appears to be recovering from the labor problems. In February, South Africa’s statistics office reported that GDP expanded at a seasonally adjusted and annualized rate of 4.1 percent in the fourth quarter from the third quarter, when it had risen 2.1 percent. This pace of growth exceeded expectations.
Uninterrupted operations in the mining sector made a positive impact on manufacturing activity too. Manufacturing, which accounts for nearly 13 percent of the South African economy, increased at an annualized rate of 9.5 percent in the fourth quarter, recording growth for the first time in four quarters. Similarly, mining output jumped 15.2 percent during the fourth quarter. Not surprisingly, GDP grew a meager 1.5 percent for 2014, reflecting South Africa’s struggle with a host of domestic problems, including sky-high unemployment, infrastructure bottlenecks and a large government budget deficit, all through last year.
Unfortunately, within months of recording a robust recovery from industrial unrest, South Africa’s growth rate decelerated. In the first quarter, GDP in the country grew 1.3 percent from the fourth quarter. What’s worse, the country has been hit by another crisis. South Africa’s primary utility Eskom Holdings SOC Ltd., which provides close to 95 percent of the emerging economy’s power, has been regularly generating less than the daily demand of 32,000 megawatts due to various hurdles, including construction delays, labor unrest, accidents and, worse, a large cash crunch. The recurring power shortage has seemingly worsened in recent months; so much so that mining companies, which are some of the heaviest users of power, have had to cut production up to 20 percent. In fact, South African finance minister Nhlanhla Nene recently told his country’s parliament that power shortages have hurt business confidence, and hence, have stalled investment and growth. Evidently, with the increase in power outages, South African households too have grown more pessimistic about their country’s economic prospects. A measure of consumer confidence in South Africa dived into negative territory during the first quarter of 2015.
ISRAEL: PACE OF GROWTH SLOWS DOWN FOLLOWING STRONG RECOVERY FROM GAZA CONFLICT
Israel reported a series of encouraging news in early 2015, signaling that its economy had recovered strongly from the fallout of the conflict between government forces and militants in Gaza during July-August last year. Recording its fastest pace of quarterly growth in almost eight years, GDP expanded at an annualized rate of 7.2 percent in the fourth quarter of 2014. It was expected to increase only 3.3 percent. What’s more, exports, which account for nearly 40 percent of the Israeli economy, jumped 7.3 percent in the fourth quarter on the back of increased demand for high-tech goods from a steadily recovering U.S. A sharp depreciation of the domestic currency shekel not only made Israeli exports cheaper and more competitive in the global market but also boosted the value of revenues Israeli exporters earned, contributing to the improvement in export data.
However, subsequent data from Israel have turned more subdued. The Central Bureau of Statistics (CBS) said that GDP increased at a comparatively moderate annualized rate of 2.5 percent during the first quarter of 2015 due to a steady decline in new investment and the lack of growth in government spending. The data though are preliminary and some economists believe that the growth figures may improve subsequently on the strength of better exports. Indeed, the current steady growth in the country’s industrial production suggests that in the months ahead, manufacturers expect export demand to gain momentum as the global economy strengthens.
EGYPT: S&P OUTLOOK UPGRADED FROM ‘STABLE’ TO ‘POSITIVE’
So far in 2015, Egypt has sustained its reputation as one of the brightest spots in the Middle East and North Africa (MENA) region. As a net importer of oil, the economy has been benefiting from the decline in oil prices, which has provided a boost to household spending and consumption. Alongside, the government has taken several steps to improve the economy through structural reforms and austerity measures. Consequently, Egypt has been steadily recovering from the chaos it experienced following the 2011 revolution.
According to the Central Bank of Egypt, GDP grew 4.3 percent year-on-year in the fourth quarter of 2014. The bank said that a consistent improvement in investment, ongoing recovery in the manufacturing sector and increasing tourism activities contributed to GDP growth in the October-December period.
In line with these data, Egypt’s unemployment rate has also remained in a downtrend during recent months. The state-run statistics body CAPMAS reported that the unemployment rate declined to 12.8 percent in the first quarter of 2015 after falling to 12.9 percent in the previous quarter. Taking note of these developments, ratings agency Standard and Poor’s recently upgraded its outlook on Egypt from “stable” to “positive.” The rating revision is expected to make it easier for Egypt to garner loans from international financial institutions.
U.A.E.: IMF SLASHES 2015 GROWTH FORECAST AGAIN
With the slump in oil prices continuing, the UAE, a country that generates a third of its GDP through oil revenues, remains vulnerable. Therefore, the International Monetary Fund (IMF) has repeatedly cut its 2015 growth outlook for UAE. In its latest outlook, the world body has forecast that the UAE economy will expand 3.2 percent both this year and next year. Its previous forecast pegged growth at 3.5 percent. To UAE’s credit, it remains a relatively well-diversified economy despite its heavy dependence on oil revenues. In fact, the country’s non-oil sector, which the IMF believes will grow 4.4 percent this year and around 4.5 percent next year, added jobs and increased output all through 2014 to clock growth at the rate of 4.3 percent during the year.
QATAR: HIGHER PUBLIC SPENDING LIKELY TO PROP UP ECONOMY AMID OIL PRICE SLUMP
According to Gulfnews.com, Qatar’s GDP grew 6.7 percent in the fourth quarter of 2014 compared to the year-ago period. Qatar, along with Kuwait, Iraq, Oman, Libya and Saudi Arabia, is believed to have been hit the hardest by the oil price slump. Nevertheless, the economy is also counted among countries that are well placed to withstand an oil price slump for an extended period primarily thanks to the enormous volume of investment it is carrying out now in preparation for the 2022 Soccer World Cup. According to one estimate, Qatar has earmarked $200 billion for various kinds of infrastructure projects in the country.
This article is for informational purposes only. This article is not intended to provide tax, legal, insurance or other investment advice. Unless otherwise specified, you are solely responsible for determining whether any investment, security or other product or service is appropriate for you based on your personal investment objectives and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation. The information contained in this article does not, in any way, constitute investment advice and should not be considered a recommendation to buy or sell any security discussed herein. It should not be assumed that any investment will be profitable or will equal the performance of any security mentioned herein. Thomas White International, Ltd, may, from time to time, have a position or interest in, or may buy, sell or otherwise transact in, or with respect to, a particular security, issuer or market on our own behalf or on behalf of a client account.
FORWARD LOOKING STATEMENTS
Certain statements made in this article may be forward looking. Actual future results or occurrences may differ significantly from those anticipated in any forward looking statements due to numerous factors. Thomas White International, Ltd. undertakes no responsibility to update publicly or revise any forward looking statements.
