Resurgence in UAE business activity in December

Dubai - Most businesses are also bullish that 2021 will see a significant pick up in business activity with the expected reopening of air, land and seas borders with Qatar after over three years of blockade

Buoyed by a faster upturn in sales and a strong increase in export demand, the non-oil private sector economy of the UAE witnessed a resurgence in business activity in December, but employment continued to fall, a survey showed on Tuesday.

Amid a renewed increase in output, businesses expanded their purchasing activity in December, in part offsetting the reduction recorded in November, according to the survey by IHS Markit UAE Purchasing Managers' Index.

The headline seasonally adjusted IHS Markit UAE PMI rose from 49.5 in November to 51.2 in December, to indicate a renewed improvement in the sector's performance. “Output levels returned to growth territory at the end of the year," said the survey report.

The latest data signals a solid increase in non-oil activity that was the second-fastest since September 2019 (behind July's recent high). Firms related the surge in output to an improvement in market conditions and a sustained rise in client demand. New business also rose in December, and at a more marked pace compared to November's slight rate of expansion.

David Owen, economist at IHS Markit, said that rising output and new orders, particularly from abroad, were key drivers of the renewed improvement in non-oil business conditions in December.

Most businesses are also bullish that 2021 will see a significant pick up in business activity with the expected reopening of air, land and seas borders with Qatar after over three years of blockade following a historic agreement reached at the GCC summit. A long-awaited revival of cross border trade, re-exports and travel with the neighbouring Gulf country is expected to give a major boost to the non-oil sector, quickening the pace of growth projected by economists in 2021.

Shailesh Dash, financier and entrepreneur, said that the data by IHS Merkit confirms that the process of recovery has started and that the companies are rationalising and planning for the future. "Most of the indicators show positivity is in the upswing and I believe as we move forward into 2021 and get as much population as possible vaccinated the wheels of growth will become faster. I think it’s time to heal the scars left by Covid-19, moved forward with the lessons taught by 2020 and restructure our businesses and stand ready for onward growth," he said.

The Central bank of the UAE foresees the country’s real GDP to grow by 2.5 per cent and non-hydrocarbon real GDP by 3.6 per cent in 2021 after contracting 6.0 per cent in 2020.

For 2021, the UAE budget projects spending of Dh58 billion, down from last year’s Dh61.35 billion. But the government said it is confident that the UAE economy would be among the fastest in the region to recover in 2021.

Owen said the PMI rose above the 50.0 no-change threshold for the first time since September, and was at its highest level since August 2019.

“Employment numbers continued to fall in December, with the rate of job shedding quickening from November. Firms reduced their workforces each month throughout 2020. The latest fall came amid a drop in backlogs of work, the fourth in consecutive months, although the pace of depletion slowed again from October's recent record,” he said.

"The jobs market continued to act as a drag on the sector, as employment fell again at the end of the year. Moreover, the rate of job shedding quickened, as cash flow shortages meant some firms were unable to pay for new staff. The subdued rate of cost inflation may help struggling businesses in the near term, although margins remained under pressure due to falling output charges as firms attempt to speed up the recovery in demand," said Owen.

Price pressures remained weak over the month, while the outlook for future activity improved only slightly from November's record low, said the survey.

The outlook for the next 12 months of activity picked up only slightly from November's record low. Most companies expect business activity to remain flat over 2021, despite hopes of a broad recovery in global economic conditions. Only 2.0 per cent of respondents gave an optimistic outlook for the sector.

issacjohn@khaleejtimes.com