Lockdown inflicts sharper business downturn in April

Dubai - The seasonally adjusted IHS Markit UAE Purchasing Managers' Index (PMI), which covers manufacturing and services, fell to 44.1 in April from 45.2 in March.

The UAE non-oil private sector suffered an even sharper downturn in April as lockdown measures in place throughout the month led to steep falls in activity, purchases, employment, and export sales, latest Purchasing Managers’ Index showed. 
Providing an overview of operating conditions in the non-oil private sector economy, IHS Markit UAE PMI report said the outlook for future activity reached the worst since August 2017. Input costs declined as companies made efforts to lower expenses, including a solid drop in employment, wage cuts, and weaker purchases.
The PMI fell for the sixth month running to 44.1 in April, down from 45.2 in March. The index set a record low for the second successive month, with the figure indicating a sharp deterioration in business performance. 
Businesses were heavily impacted by public health measures taken to curb the spread of coronavirus disease in April.
“Movement restrictions and forced company closures led to a record fall in activity, as many companies lowered output and adopted working-from-home policies,” said the PMI survey.
Employment in the non-oil private sector was pared back again in April amid lockdown measures. Although solid, the rate of job shedding was slower than that seen in March. As well as workforce reductions, several companies asked employees to take unpaid leave and salary cuts in order to reduce staff costs. Firms made further efforts to lower expenses, including a steep drop in purchasing activity. Consequently, overall input costs fell at a modest pace, allowing businesses to reduce selling prices for the nineteenth month running.
David Owen, economist at IHS Markit, said lockdown measures and business restrictions led to a steep decline in UAE non-oil private sector activity in April.
“Shop closures and restrictions in domestic and international travel had huge repercussions on new business, which fell at an unprecedented pace after also declining sharply during March.”
According to Standard Chartered, non-oil economic activity in the UAE is likely to weaken on external, domestic demand. It expects UAE’s non-oil economic activity could contract by 4.7 per cent year on year in 2020.
To mitigate the economic fallout of the Covid-19 lockdown across all sectors, the federal and various local governments have rolled out a spate of stimulus measures along the Central Bank of the UAE and various free zones. 
To ensure business continuity as the economy gradually reopens post Covid, the CBUAE has announced up to $70 billion (about 17 per cent of GDP) in liquidity support to the banking sector. In addition, federal and emirate-level governments have announced targeted measures, particularly for SMEs, to ease near-term operating challenges.
 Owen said average prices charged by UAE businesses fell again in April. The rate of reduction accelerated, in part reflecting the loss of sales. To recover costs, many firms reduced employment or asked employees to take salary cuts and unpaid leave, with spending on inputs also sharply lowered. “Business sentiment reached the lowest in nearly three years, reflecting heightened uncertainty from the Covid-19 crisis. While firms on balance remain optimistic of growth in the coming year, some panellists were apprehensive, noting that the risk of an economic downturn was increasing.”
While restrictions led to a further collapse in new business during April, firms saw a slowdown in client activity as shop closures and movement restrictions led to a sharp fall in consumer demand. “That said, some businesses noted a rise in online sales. Tourism declined sharply again, as countries worldwide imposed similar restrictions amid the virus pandemic.”


Saudi firms hit by sharp fall in new orders, sales
Saudi Arabia's private sector economy was hard hit by lockdown measures at home and abroad during April.
The IHS Markit Saudi Arabia Purchasing Managers’ Index registered 44.4 in April, to remain well below the 50.0 no-change threshold. Lower volumes of activity were almost exclusively attributed to business closures and shrinking customer demand. Where growth was reported, survey respondents often cited rising spending on healthcare products and services. New work also decreased sharply in April, with export sales particularly hard hit by international border closures and lockdown measures abroad, the PMI report said.
New orders and employment levels continue to slide amid intense supply chain pressures in April.
Tim Moore, economics director at IHS Markit, said Saudi Arabian private sector output fell at the fastest pace since the survey began more than a decade ago, reflecting widespread business closures and a sharp reduction in customer demand. "Export sales and international supply chains were also severely impacted by the global Covid-19 pandemic in April, with both indices hitting survey-record lows. The small minority of Saudi Arabian companies reporting business activity growth in April often linked this to higher spending on healthcare products and services,” said Moore.
 There were also sporadic reports that a successful shift to online operations had helped to limit the overall decline in new work, especially among service providers. "However, survey respondents remain very cautious about their prospects for the year ahead, with business sentiment lifting only very fractionally from the record low seen in March," said Moore.
Sharp fall in Egypt PMI
The Egypt PMI fell dramatically in April, with activity, new business and exports declining at record rates amid measures to ease the coronavirus crisis. Business output was severely limited, leading firms to enact large cost-cutting strategies including weaker input spending and job reductions.
As a result, input costs rose at the softest pace ever seen in the survey. The IHS Markit Egypt Purchasing Managers’ Index fell considerably from 44.2 in March to 29.7 in April, marking the lowest figure recorded since the series began in April 2011.  
Business activity, as measured by the survey, decreased at an unprecedented rate during April as firms were hemmed in by measures to stop the spread of Covid-19 and subsequent tail-off in consumer demand. Measures included the forced closure of hospitality venues, with other firms constrained by restricted operating hours and curfews, the PMI report said.
David Owen, economist at IHS Markit, said the Egypt PMI sunk to an historic low of 29.7 in April, as the country faced the first full month of measures restricting activity and movement in the wake of the COVID-19 pandemic. "Businesses lucky enough to remain open scaled back activity on a massive scale, as many highlighted sharp falls in domestic sales and foreign demand. Firms forced to close unsurprisingly recorded an even steeper decline in output.”
Employment levels dropped again in April, although the rate of decline was much softer than for activity. “An extended period of weaker output may lead to larger job reductions in the future. "Business expectations remain strong though, in fact improving since March, which may suggest firms will look to retain work forces for when the economy reopens. The outlook may darken though should the crisis worsen and measures are extended." 
issacjohn@khaleejtimes.com