The leading economic performance indicators in the Middle East region have started showing signs of recovery from the recession triggered by the dual shock of the COVID-19 pandemic and low oil prices, according to a latest report released by PwC.
Improvements in the purchasing managers indices (PMI) across the region, which are among the best leading indicators for trends in non-oil GDP, showed that the economic activity has picked up in almost all the countries except Lebanon, PwC said in its Middle East Economy Watch report.
‘The second quarter of 2020 witnessed historically low oil prices and the most intense OPEC+ production cuts, exacerbated by the first wave of the COVID-19 pandemic in the Middle East. Economic activity, however, picked up in the third quarter with leading economic performance indicators showing signs of recovery. The PMI, which were in the contraction zone for the entire region in the second quarter, are showing expansion for most months since July,’ the report said.
Another encouraging sign for the Middle East economies, as per the PwC report, was the mobility data from the third quarter that uses mobile phone GPS location to show the frequency of visits to different locations including workplaces and shopping centres. By November, most countries were showing a marked recovery in mobility, although still about a 20-25 per cent below the baseline.
‘The PMI, mobility and point of sales data, along with more anecdotal accounts of activity, suggest that strong rebounds will show up in the third quarter GDP data. Some sectors, like manufacturing and trade, will have likely recovered more strongly than tourism,’ PwC said.
It said the government stimulus spending continues, including support for private-sector salaries and tax deferrals, with central banks in the UAE and Saudi Arabia announcing rolling over stimulus packages to 2021 to support the economy.
The report, however, warned that the economic recovery from COVID-19 will be just as challenging as the health response, and even more drawn out, as it could take two years for the GCC economies to recover to pre-COVID levels. After a historic shock of oil demand in the second quarter along with a year-on-year decline of 9 per cent on average in 2020, forecasts predict a prolonged impact on oil demand.
Richard Boxshall, senior economist at PwC Middle East said, “The third quarter of 2020 has definitely shown signs of recovery for the economy. This has mainly been due to better measures in place to combat the pandemic and continuous adaptation by governments and businesses to the ‘new normal.’ While an uncertainty about the economic situation of the post-pandemic world persists, the region is much better prepared to manage COVID-19 next year than this, so we should look forward to a period of economic growth and recovery in 2021.”
PwC said one of the lasting impacts of the pandemic will be on the sovereign balance sheets. The IMF expects regional debt (excluding Lebanon, which went into default in April) to increase by 64 per cent by 2025 to US$1.5tn. The most dramatic increase will be in Kuwait, going from just 12 per cent of GDP in 2019 to 91 per cent in 2025. Saudi Arabia and the UAE are expected to witness a slight increase in the debt-to-GDP ratios from 2020 due to higher buffers and fiscal consolidation.