Drop in new business signals delay in robust recovery
New business declined for the first time since May, leading to a slower rise in output and a sharp reduction in backlog volumes
Portending a further delay in economic recovery from the pandemic-driven setback, business conditions in the UAE non-oil private sector worsened in October, new research data shows.
“Notably, new business declined for the first time since May, leading to a slower rise in output and a sharp reduction in backlog volumes,” IHS Markit survey report said on Monday.
The IHS Markit UAE Purchasing Managers’ Index fell below the 50.0 no change mark in October, posting 49.5, down from 51.0 in September. The reading marked the second deterioration in business conditions in three months, and signalled that the UAE non-oil economy is struggling to maintain a robust recovery from the Covid-19 lockdown earlier in the year.
However, analysts believe that the UAE’s new Dh58 billion budget for 2021 will help speed up the recovery with the increased stress on development of vital national projects.
His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, said the national economy would be among the fastest to recover in 2021 as the government has dealt with the 2020 budget efficiently and has all the tools to continue its financial and operational efficiency in 2021.
The federal budget for 2021 keeps pace with global economic changes without compromising national development priorities. “Our message to all federal entities for the fiscal year 2021 is to have balance in spending, flexibility in plans, and efficiency in budgets,” he said.
According to a report by the Horizon Research Group, the UAE is first in the Arab world in the post-Covid economic recovery index. The UAE is supported by many factors and areas of strength including a strong institutional framework and advanced digital capabilities across various sectors, in addition to the high educational level of the population, it said.
The IHS Markit survey shows that increased competition and a slow improvement in market activity led to weaker sales volumes over the month. With the pandemic accelerating in some regions, export growth remained mild, although there were some reports of new business wins from GCC countries, said the report.
“While UAE companies continued to increase output levels, the rate of expansion slowed to just a modest pace in October. Nevertheless, they were still able to lower backlogs, and did so to the greatest degree since November 2011,” said the report.
David Owen, economist at IHS Markit, said the recovery in demand across the UAE non-oil economy suffered in October, as PMI survey data signalled the first monthly drop in new business since May.
“While the decline was mild, it nonetheless showed a stalling of growth momentum after the Covid-19 lockdown.”
Owen said sentiment among businesses towards the 12-month outlook was at a joint-record low as firms remained concerned that the pandemic could further hurt activity and spending.
“Firms are notably concerned that costs will outstrip revenues, leading to a further cut to payroll numbers and a sharper fall in inventories amid efforts to free-up liquidity. On a positive note, cost inflation remains weak, in fact easing slightly on the month. This should reduce pressure on margins as selling prices continue to be lowered due to efforts to drum up sales,” he said.
With demand falling and firms able to reduce work outstanding, the PMI data pointed to a further decline in workforce numbers at the start of the fourth quarter.
In Saudi Arabia, October data signalled a second straight month of output growth in the non-oil private sector economy. However, new business expanded more slowly than in September amid weak export volumes and a further impact from the pandemic on corporate spending.
Owen said while the latest PMI data indicated a further expansion in the Saudi Arabia non-oil private sector in October, there were reasons for fresh concern about the pace of recovery.
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