UAE showing signs of recovery as coronavirus restrictions ease

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As the UAE emerges from stringent lockdown measures, the non-oil sector remained firmly in contraction territory in May despite some signs of recovery. Output fell to a much lesser extent than April's unprecedented pace, yet firms were still limited by a weak market environment and lower employment, IHS Markit UAE Purchasing Managers' Index shows.
"Greater freedom of travel led to an easing of supply chain pressures, while input costs ticked up for the first time since February. At the same time, sentiment towards future output dipped to the joint-lowest ever seen in the series, as businesses became increasingly concerned over the long-term impact of the Covid-19 pandemic on the economy," said the report.
The PMI increased from a record low of 44.1 in April to 46.7 in May. "Despite reaching the highest in three months, the latest figure indicated a solid decline in business conditions. This was partly due to a further drop in activity in the UAE non-oil private sector in May, marking the fourth contraction in a row."
However, as several businesses were able to reopen and increase output due to lighter curfew measures, the rate of decline eased back from April's record. Nevertheless, many firms highlighted that client demand had so far failed to recover, indicated by another sharp decrease in new order volumes. The Institute of International Finance said that shocked by Covid-19 and the plunge in oil prices, the UAE and other GCC states will experience their worst recession in history.
"The depth of the contraction for this year and the speed of the expected recovery in 2021 is subject to a high degree of uncertainty." David Owen, economist at IHS Markit, said the change in curfew hours in May helped to lighten the impact on the UAE economy as suggested by PMI data.
"However, this reading signalled that the market environment remained weak, particularly as new orders data showed another steep fall in demand." Owen said export sales in the UAE fell again, but at a softer rate, while deliveries were helped by the lifting of travel restrictions.
"Input prices have begun to creep up, leading firms to make further cuts to staffing as sales revenues remain low. Additionally, UAE firms continued to reduce employment numbers in May, although the latest fall was the softest since February."
In Saudi Arabia, business conditions deteriorated again during May, but the speed of the downturn moderated from April's survey-record pace. Tim Moore, economics director at IHS Markit, said new work continued to fall at a faster pace than at any time prior to the pandemic, with survey respondents saying on rapid spending cutbacks among clients in response to concerns about the economic outlook.
"Some firms noted that an easing of lockdown measures had helped mitigate the downturn in May, alongside efforts to boost online business operations. However, there were still widespread reports that business closures and constrained operating capacity had held back overall activity across the non-oil private sector."
In Egypt, the PMI rose 11 points to 40.7 in May which, while signalling that the worst of the economic hit from the COVID-19 crisis may have passed, still pointed to weaker business conditions since April. "Output and new orders fell again as private sector demand remained broadly stagnant. Export sales were also weak. In addition, job losses accelerated to the quickest pace in over three years," said Owen. - issacjohn@khaleejtimes.com

Issac John

issacjohn@khaleejtimes.com