Saudi Arabia recorded a 0.4% y/y contraction in the second quarter, compared with a 1.7% y/y contraction in Q1, according to Daniel Richards, Emirates NBD's Mena economist covering markets in North Africa and the Levant. 

 

This marked the fourth y/y decline in a row, but it was the shallowest. As in the previous periods, the decline was driven by the oil sector which logged a contraction of 8.5% y/y in Q2 with Opec+ and voluntary additional oil production curbs weighing on output. 

 

Non-oil activity expanded 4.4% y/y, up from 3.4% in Q1, while government activity was up 3.6% y/y in the second quarter. On a quarterly basis, headline growth was a positive 1.4%. “We forecast headline growth of 1.0% in KSA this year, with oil GDP set to end the year down 4.0% as the y/y drag of lower oil production dissipates through H2. We project that lower oil GDP will be offset by 4.0% growth in non-oil GDP and a 2.0% expansion in government services,” he said.

 

UAE petrol prices

Meanwhile, UAE petrol prices for the month of July have been announced, with prices at the pump set to rise by some 2% for August after two consecutive months of declines in June and July. 

 

The hike in prices reflects the trend in global oil prices in June, but with prices having trended lower through July, prices at the pump will likely decline again in September. 

 

Transport accounts for around 10% of Dubai’s inflation basket, with petrol prices accounting for a sizeable proportion of that, so changes in the cost of filling up tanks has implications for headline CPI inflation. Dubai’s annual inflation rate was at 3.9% y/y in June, in line with the average pace over the first half of the year.

 

Regarding rate cut, Richards said the US Federal Reserve kept the Fed funds rate unchanged at its FOMC rate-setting meeting yesterday, with the upper bound remaining at 5.50%. 

 

Fed cut likely in September

“This had been the market consensus expectation and our own, and our view has been since April that the first cut from the Fed in this cycle will come at the next meeting, scheduled for September.” This looks increasingly likely to play out when looking at the language from the FOMC communiqué and chair Jerome Powell’s press conference following the decision, with Powell stating that ‘a reduction in our policy rate could be on the table as soon as the next meeting in September.’ 

 

“Our forecast remains that we will see two 25bps cuts before the end of the year, one in September and one in December, despite the dot plot of FOMC member projections having come down to just one cut in the latest summary of economic projections in June. A September cut is fully priced in by markets.”

 

Preliminary inflation data for July put Eurozone price growth at 2.6% y/y, up from 2.5% in June and missing expectations that it would remain at that level. Core inflation was 2.9% y/y, unchanged from June’s print and higher than the predicted 2.8%. 

 

Prices were flat at 0.0% m/m, compared with predictions of deflation of 0.1%. The upside surprise was driven by sticky services inflation at 4.0% y/y, with Germany and Italy among the member states that came in hotter than expected. The next ECB meeting is in September, with more inflation data set to be released in the meantime, but the CPI and GDP data of the past several days will likely complicate the decision-making process.--TradeArabia News Service