Daily Economic Update

MENA: PMIs show mixed trends as Saudi Arabia and UAE rise while Egypt and Kuwait ease. PMI readings for September painted a mixed picture across the region’s non-oil private sectors, reflecting divergent trajectories in business activity. Indices in Saudi Arabia and the UAE gained momentum, while Egypt and Kuwait recorded softer readings amid cooling domestic demand. In Egypt, business conditions continued to deteriorate, with the PMI falling to 48.8 from 49.2 in August, the seventh consecutive month below the neutral 50 mark. The downturn was driven by declining output and new orders, as rising prices and weak consumer demand weighed on sales. Although cost pressures eased thanks to a firmer exchange rate and lower import costs, wage increases, and subdued confidence continued to challenge the outlook. Kuwait’s non-oil private sector maintained expansion but slowed, as the PMI edged down to 52.2 from 53. Both output and new orders moderated to their weakest levels in a year, reflecting a mild cooling in domestic momentum. Nonetheless, optimism improved as firms pinned hopes on product innovation and competitive pricing to sustain growth. In contrast, Saudi Arabia’s PMI rose to 57.8 from 56.4, marking the strongest expansion since March. Output and new orders surged, driven by robust domestic and external demand, with firms ramping up employment and purchasing activity. Similarly, the UAE PMI rebounded to 54.2 from 53.3, signaling renewed strength across the non-oil sector. Growth in new orders accelerated to its highest since February, supported by strong domestic sales and a pickup in export demand. Employment growth reached a four-month high, while inflationary pressures persisted on the cost side but remained contained at the output level. Overall, while Egypt and Kuwait show signs of moderation, Saudi Arabia and the UAE continue to anchor regional growth momentum, underscoring the resilience of Gulf economies amid a gradually improving global outlook. 

Egypt: The Central Bank of Egypt’s latest decision to cut rates by 100 bps fully aligns with our expectations outlined last week, both in scale and rationale. As anticipated, the Monetary Policy Committee opted for a cautious taking the O/N lending rate to 22%, balancing growth support with its commitment to price stability. The CBE’s statement echoed the key themes we highlighted earlier: easing inflationary pressures, a favorable real interest rate buffer, and the need to sustain disinflation while maintaining Egypt’s attractiveness to carry trade investors. The press release confirmed that real GDP growth has gained traction and that inflation has decelerated sharply, reinforcing the case for a gradual policy adjustment rather than an aggressive pivot. The tone of the statement, emphasizing “meeting-by-meeting” evaluation and vigilance toward upside risks, underscores the CBE’s data-dependent approach. Overall, the move strengthens confidence that Egypt’s monetary policy remains both credible and responsive to evolving macroeconomic conditions.

Chart 1: Kuwait, Saudi, UAE & Egypt PMIs (index, >50=expansion) Source: S&P Global, Riyad Bank

US: Government shutdown continues; ISM Services falls to 50 in September. US lawmakers remained at impasse over reaching a continuing resolution to reopen the government, resulting in the non-farm payroll report, which was scheduled to be released last Friday, being delayed. Based on the ongoing gridlock and hardline stances by both parties, a quick resolution does not appear in sight yet. However, the matter continues to be dynamic and there is always the possibility of some sort of agreement being reached. In the meantime, important economic releases are being delayed, creating an additional layer of uncertainty for the Fed, which has already been facing a very difficult situation (of a weakening labor market and rising inflation) to start with. The next FOMC meeting is on 28-29 October. On the data front, services activity in September unexpectedly stagnated as the ISM services PMI dropped to a four-month low of 50 from August’s 52 on largely broad-based weaknesses. Importantly, the services business activity sub-index fell to 49.9 (55 in August), the lowest level since May 2020. The employment measure remained in contraction territory for a fourth consecutive month, albeit softening the pace of decline to 47.2 from 46.5 in August, with price rises accelerating to 69.4 from 69.2 to stay near the highest level since late 2022. Septembers’ weak ISM indicates that the robust economic momentum seen in recent months could potentially lose steam amid weakening job growth and elevated inflationary pressures. However, ongoing broadly resilient GDP growth had previously defied prior indications of weakness as per ISM and other soft data indicators and this can continue to be the case going forward.

Japan: Ruling party elects pro-stimulus Takaichi as its new leader, who will likely be Japan’s first female PM later this month. Japan’s ruling Liberal Democratic Party (LDP) elected Sanae Takaichi as its leader, paving the way for her to replace the current PM Shingeru Ishiba. Her nomination will now need to be approved by a parliamentary vote later this month. Takaichi is seen supporting a more fiscally stimulative policy, while she previously urged the Bank of Japan to avoid raising interest rates and maintain a loose monetary stance. She also had more hawkish views on the recently signed Japan-US trade deal, calling for renegotiations if Japan’s interests are not being served, but softened her stance after being elected as the LDP leader yesterday. However, she would require support from other parties on any ambitious policy decisions given a lack of majority for LDP in parliament.

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