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Join our industry experts in this new monthly podcast series as we share the region’s economic update and help you stay current on the latest updates across the GCC.
Hello and welcome to the Economy Bites . The podcast features the latest market and economic updates from the economics and sustainability team at PwC Middle East as featured in our monthly Transforming our Region webinar. In this episode, we hear from Richard Bockshore, partner and Chief Economist at PwC Middle East.
Speaker 2:Since it's been a little while, I thought I'd go back perhaps a few old familiar chart just to sort of remind myself and ourselves about kind of what's going off. First one, we'll just look at is around PMI, push managers index, and that gives a monthly pulse check on business activity, non oil business activity in the region. And as, you know, you've for run, it's generally looking quite positive. So we'll just have a quick look at that in a moment. I'll also have a look at the oil markets and then we've got the 2023 fiscal outturn numbers for Saudi Arabia and they're quite a good sort of reality check on some of the economic numbers that we talk about.
Speaker 2:Often they're indicators and outlook, but the fiscal outturn is is a real way of understanding actually how an economy has performed. So without further ado, I'll go into those. So here's the EMI index, and, just a reminder, anything above 50 suggests economic expansion or expansion at least in the non oil private sector. And , once again, we've we've seen for many, many, many months, years in fact, it's a positive story of momentum and expansion. Though generally we've got all of these pointing to health in the region.
Speaker 2:If we look a little deeper at what's happening in Saudi Arabia, for example, though it is actually recording the lowest level in 2 years, but it still remains strong. I would say encouragingly though what's behind the positive aspects of the Saudi Arabia number is new business activity. New business activity obviously is telling us something about what's gonna happen in the near future, in the next few months, So wrong activity there is really positive. What's negative pulling it back a little bit is really around prices, purchasing prices. And we've seen the sharpest rates have increased since May of 2012, in fact.
Speaker 2:So actually that's quite a strong increase in purchasing prices. I think there are a number of reasons to that, strong demand, high material prices, but I think this is perhaps the supply chain and the Red Sea issues that maybe are starting to play through in some of the economic numbers that we're seeing. UAE business activity remains very strong, well above long run averages. The rate to growth is slowing, and, again, the slowing may be down to supply chain issues, delivery delays, and increased prices. So I think there's something to watch there.
Speaker 2:But, you know, notwithstanding a few sort of issues, generally very positive. So moving on to the oil market, obviously this remains the key most important driver of economic growth, not the only driver anymore. We've called this out before. The non oil economy is now pulling away from the oil economy, but the oil economy remains relevant and important. Brent Crude's been hovering around that 80 to $83 mark.
Speaker 2:The sort of news coming out in February is maybe demand being revised down by the IEA, softer perhaps than OPEC has suggested, maybe some differences in non OECD countries. On the other side of equation, it's around production. Production has been holding steady below the capacity. So again, we've had this for quite a long time which is production has been held back to help prop up prices and that continues, so there's discipline in OPEC, but I think what that really means is that we're unlikely to see any significant increase in prices over the next year, so that sort of 80 to $85 mark is probably where we're gonna continue at least not going above that for the rest of the year. Where that sort of is relevant, which we've got on the right hand chart, is around the fiscal break even points, and we'll come onto the fiscal position in a moment.
Speaker 2:But these have been steadily rising, but these are the points at which the governments really need the oil price to be in order in order to have a fiscal positive position. And 80 -ish dollars is above most of the countries with the exception of Bahrain, and it's around about where Saudi Arabia is. Finally, I just wanted to touch on the Saudi fiscal position. As I mentioned, this gives us a sort of a real number, real insight into what's actually happened into the economy. And the deficit in Saudi Arabia is run around 2% of GDP, so negative 2% of GDP, which is one of the better outcomes that we've seen for a number of years.
Speaker 2:So negative 2% deficit, as you mentioned, in most large economies around the world will kill themselves for a number like that. Though, you know, maybe we're used to positive fiscal deficit numbers, but a small negative one isn't no bad thing at all. The reasons for it outperforming where expectations were is revenues have generally been higher than expected. Oil revenues higher in Q4, tax revenue up 10% year on year. That is a signal of what is happening in the underlying economy.
Speaker 2:Non oil revenues up 15% year on year. I mean these are incredible sort of year on year growth numbers in tax and non tax revenues. Expenditure also up and above expectation and above budget, so maybe there's a bit more to be done in terms of containing it. The real big drivers were goods and services 38% above budget. That's a little bit of a concern I would say in capex.
Speaker 2:So really this is a sort of a capex driven kind of budget outturn which is offset by some really strong sort of fiscal revenue numbers. So, yeah, all in all, kind of there's a bit more work to be done on fiscal discipline, I would say, but tax revenue is holding up. The outlook in 2024 is probably expect a bit more discipline, I think, and therefore a little less support coming from the government sector into the economy. And therefore, again, you're relying on the non oil economy in particular to drive economic growth. Non oil economy looks pretty well set as we've seen, but overall growth should be positive but maybe moderated a bit by what's happening in the government sector and in the oil economy.
Speaker 1:Thank you for tuning into this episode. Tune in again next month for a new episode of Economy Bites.