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Tue 3 Mar 2020 02:06 PM

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Revealed: the impact of COVID-19 on UAE, Saudi economies

The spread of coronavirus is seeping into Gulf economies with both the UAE and Saudi Arabia reporting challenging conditions in February

Revealed: the impact of COVID-19 on UAE, Saudi economies

The impact of coronavirus is seeping into Gulf economies with both the UAE and Saudi Arabia reporting challenging conditions, according to new research.

IHS Markit said the outbreak is weigh on exports and supply chains in the UAE, the second-biggest Arab economy, while in Saudi Arabia output, new orders and employment trends have all lost momentum since the start of 2020.

The coronavirus is spreading further in the region. Saudi Arabia, which has restricted air travel, reported its first confirmed case on Monday.

The research said business conditions in the UAE worsened in February. Emirates Group, which runs the world’s biggest airline by international traffic, earlier this week encouraged staff to take leave as the outbreak saps demand for travel.

It said UAE firms began to limit activity due to weaker new orders, while employment fell again amid efforts to streamline  costs. 

Consequently, output expectations dropped sharply to a near two-year low, dampened by fears around the coronavirus outbreak on exports and supply chains.

The IHS Markit UAE Purchasing Managers' Index (PMI) posted 49.1 in February, down slightly from 49.3 in January and at its lowest since August 2009. The figure signalled a second successive month of deterioration, driven by declines in output, new orders and employment.

David Owen, economist at IHS Markit, said: "UAE's non-oil private sector suffered another blow in February, with latest PMI data indicating a further deterioration in business conditions.

"Supplier performance was meanwhile hit by the coronavirus outbreak in China, with PMI surveys globally noting significant delays to freight deliveries, as well as weaker export demand. With many UAE firms also suffering from credit issues, backlogs rose for the fifth month running.

"While many firms remained upbeat for the year ahead, business expectations were hit by fears that the virus outbreak could damage an already struggling domestic economy. As a result, confidence for future output fell to a near two-year low."

In Saudi Arabia, the PMI registered 52.5 in February, down from 54.9 in January and the lowest since April 2018. That said, the headline index was still above the crucial 50.0 value that separates expansion from contraction.

The main factors weighing on the PMI were slower rates of output and new business growth across the non-oil private sector in February.

Tim Moore, economics associate director at IHS Markit, said: "The latest survey data highlights a sharp loss of momentum since the start of 2020, with overall business conditions improving at the slowest pace for almost two years.

"New order growth continued to weaken despite efforts to stimulate sales through price discounting, which led to the weakest rise in non-oil private sector output since the survey began in August 2009.

"February data revealed additional challenges from international supply chain disruptions following the COVID-19 outbreak in China, with firms seeking to build up inventories and source alternative suppliers of critical components. As a result, survey respondents indicated longer lead times for the delivery of raw materials and the sharpest rise in purchasing costs for almost one-and-a-half years."

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