The United Arab Emirates (UAE) experienced a massive 13.6% hike in corporate earnings so far in 2018, compared to just 9.8% for 2017, according to financial data released by MUFG Bank on 17 September 2018.
What's caused the growth in UAE corporate earnings?
A large proportion of this fantastic corporate growth was driven by Dubai corporates, which registered the highest growth rate within the Gulf Cooperation Council (GCC). The Dubai corporate growth rate of 6.5% for 2017 has been eclipsed by Dubai corporates' growth in the year to date, and the results from these companies account for 8.5% of the UAE gross domestic product (GDP).
More about GCC corporate earnings to date
The MUFG analysts at Mena Economic Wrap pointed out that the entire UAE saw growth in corporate earnings of 13.6% in year-on-year figures, compared to the 2017 growth rate of 9.8%. The second highest growth rate increase was in Saudi Arabia, which evidenced an increase of 15.7%.
The Head of Mena Research and Strategy at MUFG Bank, Ehsan Khoman, commented: "Corporate earnings growth data have been broadly rising, in line with our conviction that the GCC region is over the worst, with 2018 thus far offering some relief from the stresses and disappointments that have characterised these countries since 2014".
Total corporate earnings growth rates have averaged 12.1% so far in 2018, compared to 7.1% for the entirety of 2017. Ehsan Khoman went on to add: "With long lag times in the publication of official national income accounts, corporate earnings are a leading indicator of timely economic trends, particularly in the GCC region".
MUFG Bank analysts feel these stronger corporate earnings results across the GCC are linked to the cyclical upswing that's being experienced in most of these countries at present, by way of higher levels of economic growth, greater levels of government revenues and increased per capita incomes. Though Mr Khoman did go on to stress that none of the GCC countries is immune to the effects of equity multiplier (EM) volatility that has been present since August, nor the financial impacts of the current Turkish crisis. He said: "The MSCI GCC index is trading at 5.4 per cent down compared with July, over investor concerns in relation to exposure of GCC banks to Turkey. Nevertheless, GCC sovereign yields have fared much better, predominantly due to oil prices rising 8.8 per cent over the same period."
Although the team at MUFG Bank are confident about the short-term outlook for GCC countries, this positive situation is far from complete and real business transformations are still in very early stages. This is reflected in the predominantly cyclical nature of corporate gains, as they seem to be more a result of a fairly modest upswing after years of decline, rather than a real improvement to medium-term prospects of growth rate.
Most experts in the field agree that hydrocarbons should not be the major source of funding, as they are such volatile commodities. Forging ahead means building far more sustainable economies with the ability to place less reliance on cyclical commodities in order to handle them more appropriately.