Top Arab Economies Dodge Stagflation Thanks to Strong Demand
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The two largest Arab economies are powering ahead as new business and demand helped insulate them from a sharp acceleration in global energy and commodity prices after Russia's invasion of Ukraine.
Concern is building worldwide that the crisis in eastern Europe will result in stagflation, or rapidly rising prices and weak economic growth. But for now, non-oil output gains were intact in Saudi Arabia and the United Arab Emirates, according to March surveys of purchasing managers by S&P Global that offered a first glimpse at the conflict's spillover effects in the region.
A Purchasing Managers' Index compiled for Saudi Arabia rose to 56.8 from 56.2 in February, with output growing at the fastest in over four years. A similar gauge for the neighboring UAE remained at 54.8, well above the 50 mark that separates expansion from contraction, even as input cost inflation reached a 40-month record.
Read more: Surging Price of Everything Spells Stagflation, Risks Recessions
In the UAE, “a strong rise in demand across the non-oil economy in March masked the concerning threat posed by global commodity prices,” said David Owen, economist at S&P Global.
Russia's invasion of Ukraine has sent already high crude prices soaring and affected global exports of grains, of which the Middle East region is a major importer.
In Saudi Arabia, higher energy and material prices translated into the sharpest uplift in both costs and selling charges since August 2020. Input prices accelerated at the fastest in just over a year and a half.
“Cost pressures escalated during March as commodity prices turned volatile in response to the Russia-Ukraine war,” Owen said. “Rising petrol and raw material prices greatly added to firms' expenses sheets.”
Other highlights from the PMI reports:
- Saudi Arabia saw its first drop in employment in a year after a slight drop in backlogs
- Saudi companies were overall upbeat about future activity, but sentiment remained weak compared with the historical trend
- The pace of job creation in the UAE was “only marginal” as some firms tried to cut employee costs
- UAE companies were confident activity would rise over the coming year, citing improvements in overall economic conditions
©2022 Bloomberg L.P.
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