Latest activity indicators in the Mena region have improved reflecting an easing in lockdowns, although they remain below pre-crisis levels, said Japan-based Mitsubishi UFJ Financial Group (MUFG), a leading global financial services group in a new report.
May's batch of PMI readings across the Mena region suggests that we are over the worst. A rebound is underway in corporate conditions in Saudi Arabia, the UAE and Egypt, although containment measures and the ongoing rise in daily new Covid-19 infection rates continues to take a toll on corporate output in Qatar, MUFG said in its latest Mena Economic Weekly.
“We caution that PMIs measure sequential shifts in activity – that is, corporates are asked whether their level of output is higher, the same or lower than the previous month (note April was the peak lockdown period) – thus, whilst the May surveys did demonstrate that output, new order and employment improved modestly relative to April, they did nevertheless remain in contractionary territory,” MUFG said in the report.
Regional central banks financial system liquidity and corporate support schemes are showing up in credit growth data. The initial policy response across the region was led by central banks, focusing on financial system liquidity as well as direct corporate support to minimise the economic fallout.
The UAE's $70 billion Targeted Economic Support Scheme (TESS) alongside the $26 billion stimulus provided by Saudi Arabian Monetary Authority (SAMA) to the banking sector to facilitate financing both demonstrate that such actions have channelled through into a sharp rise in lending growth, the report said.
Whilst the precise composition and magnitude of new lending provided under these packages is unclear, the surge in credit growth suggests that the authorities' efforts to offset the economic fallout of the oil-virus shocks are bearing fruit.
Despite the phased easing in lockdown restrictions, the region is by no means out of the woods, but these economies have passed the nadir in economic contraction.
“As we catalogued last week, the region is steadily looking to life post-Covid-19 towards a path of a new normal but there currently remain more questions than answers. However, there's room for hope, tempered with caution,” the MUFG report said.
“The conversation is beginning about what the next normal could entail and how sharply its contours will diverge from those that previously shaped the region. Whilst recent data alongside the continual rise in oil prices, is certainly encouraging, the sheer velocity of the oil-virus shocks signals that the region remains mired in recession, though risks are gradually beginning to skew to the upside.”
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