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Sun 5 Jul 2020 10:18 AM

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UAE shows signs of recovery with return to business growth

Saudi Arabia, by contrast, saw a sustained deterioration in overall business conditions, according to IHS Markit's Purchasing Managers' Index

UAE shows signs of recovery with return to business growth

Businesses also saw an improvement in export conditions, as foreign new orders rose for the first time since January, albeit tentatively.

Business conditions in the United Arab Emirates returned to growth but deteriorated in Saudi Arabia, a sign of an uneven recovery in the Gulf as the Arab world’s biggest economies reopen after shutdowns to contain the coronavirus pandemic.

Non-oil private sector activity in the UAE improved in June for the first time in six months and reached the strongest since October 2019, according to IHS Markit.

IHS Markit’s gauge for the UAE reached 50.4 from 46.7 a month earlier, with the outlook for future activity improved for the first time since March, according to David Owen, Economist at IHS Markit.

"More firms are now seeing an increase in activity as opposed to a decline, while new orders grew at the fastest rate in ten months," Owen said.

"Businesses also saw an improvement in export conditions, as foreign new orders rose for the first time since January, albeit tentatively."

Owen said that despite this positivity, data in recent months "shows just how large a rebound in output is required to return the UAE economy to pre-Covid levels".

"Renewed growth in June marked only a slight reprieve from the downturn that reached its peak in April," he said. "In addition, evidence from panellists suggested that balance sheets remain in a tricky situation, as firms made another solid cut to workforces in order to reduce costs. Thus it may be a long path to recovery for the labour market."

Saudi contrast

By contrast, IHS Markit’s Purchasing Managers’ Index for Saudi Arabia remained below the threshold of 50 that separates growth from contraction.

Saudi Arabia’s PMI dropped to 47.7 last month from 48.1 in May, according to IHS Markit.

"June data highlighted another difficult month for Saudi Arabia's non-oil private sector economy, with cautious business and consumer spending patterns widely reported to have held back new order intakes," said Tim Moore, Economics Director at IHS Markit.

The headline PMI signalled a sustained deterioration in overall business conditions, although the speed of the downturn remains less steep than in March and April, he added.  

"Subdued domestic demand and a sharp drop in export sales led to additional price discounting in June. Average prices charged have now dropped for five months in a row and the resulting squeeze on margins has led to more widespread cost cutting initiatives across the private sector," said Moore.

"Efforts to reduce overheads and concerns about the year ahead business outlook led to another drop in staffing numbers in June, with the pace of job shedding the fastest since the survey began in August 2009."

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