We are in the fourth quarter of what has been a testing year for the Arabian Gulf economies.
The coming few weeks will determine whether 2014 will prove to be the year the region confounds its detractors by putting the legacy of the financial crisis behind it.
The internal signs are looking good. Capital Economics’ recent research shows a marked pick-up in the region’s non-oil sector, as measured by the purchasing managers index (PMI) of the GCC countries.
In Saudi Arabia, the biggest economy in the Gulf region, the non-oil private sector index rose to a five-month high of nearly 59 points.
The PMI is a useful economic yardstick. Anything above 50 on the chart indicates growth, anything below that level signifies contraction.
Saudi Arabia has been in growth mode for some time now, especially in the non-oil sector, which behaves according to its own set of rules.
Of particular significance is the state of new Saudi export orders, which rose to a record level.
In the UAE, the country’s PMI rose to 56.6 points, well above the base growth line. Property prices, tourist arrivals and bank lending have been accelerating since the beginning of the year.
There is an interesting dynamic at work here. Nobody has ever doubted the importance of the Saudi-UAE nexus in the region. The relationship between the region’s biggest economy and its most dynamic is of crucial importance to the GCC region’s overall economic well-being.
But this relationship has taken off recently, especially between Dubai and Saudi Arabia.
Figures from the Dubai Chamber of Commerce and Industry show Saudi Arabia was the biggest destination for Dubai exports among GCC countries between January and August. Saudi Arabia’s share of the emirate’s exports was 54 per cent and that figure is rising. That dwarfs Qatar’s 16 per cent and Kuwait’s 12 per cent.
Although Saudi Arabia may still have some ways to go in overtaking Dubai’s biggest single trading partner, India, but it is getting there.
An obvious effect of the Arab Spring on the GCC region is that member countries have been concentrating on economic activities within the grouping, rather than looking abroad for business.
Contrast the GCC region’s performance with that of Egypt’s, for example, and the effects of the social and political disturbances in the region over the past two and a half years is apparent.
The PMI indicators show that Egyptian economic activity averaged just 42.9 points in the third quarter, compared to 46.8 in the second. The country’s “second revolution” has obviously done nothing to impress international investors, business people and tourists.
Just how serious a jolt the Arab Spring has been to the regional economy is revealed by a HSBC study that shows the socioeconomic convulsions would cost the most seriously affected countries some US$800 billion in lost economic output by 2014.
The GDP of the seven countries most badly hit by the disruption – Egypt, Tunisia, Libya, Syria, Jordan, Lebanon and Bahrain – would be 35 per cent better off next year had the turmoil not occurred.
In contrast, HSBC says the UAE economy will grow by 4.3 per cent this year, and 4.6 per cent next year – an upward revision of the bank's earlier forecasts.
HSBC does not state what percentage of that increase is attributable to the “safe haven” effect from which Dubai has particularly benefited, but it must be significant. However, the fly in the economic ointment is inflation. While stock markets, house prices and bank lending forge ahead, the potential for an inflationary surge in the UAE is increasing. HSBC sees consumer prices rising 4.5 per cent this year, the highest since the summer of 2008.
That figure is not enormous by global standards, but it conceals big price rises in the property sector, which was the cause of the problem five years ago.
In a recent report, the property broker Jones Lang LaSalle says recent price rises in Dubai are “unsustainable”, but it sees no immediate evidence of a bursting bubble, rather a more gentle leveling off of real estate prices over the next 12 months.
Save for oil prices, the UAE's property sector has become the single most important economic indicator in the region. In this respect, the next few months will be critical in determining whether 2014 will be seen as a year of vindication, or of false hope.
fkane@thenational.ae