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The non-oil private sector of the UAE remained in the doldrums in February as overall business conditions declined for the second month running, the latest research data showed.
Businesses began to limit activity due to weaker new orders, while employment fell again amid efforts to streamline costs, said a research report by IHS Markit.
"Consequently, output expectations dropped sharply to a near two-year low, dampened by fears around the impact of the coronavirus outbreak on exports and supply chains," it said.
David Owen, economist at IHS Markit, said that the non-oil private sector suffered another blow in February, with latest PMI data indicating a further deterioration in business conditions. "The headline reading of 49.1 was the lowest since August 2009, reflecting declines in output, new orders and employment."
Meanwhile, supplier performance was 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," said Owen.
The latest data signalled a second successive month of deterioration, driven by declines in output, new orders and employment.
Most notably, output levels contracted for the first time in over ten years, after stagnating in January. Companies reported that continued demand weakness led them to restrict activity, although the rate of reduction in output was only moderate. Input buying and stock levels subsequently declined, said the report.
In addition, the coronavirus outbreak in China reportedly led to a slight drop in export orders, the second in five months, which weighed on overall sales. The virus outbreak also caused delays of several input deliveries at UAE firms, such that overall vendor performance improved only fractionally in February.
"These delays, combined with ongoing credit issues at many businesses, led to a fifth consecutive month of rising backlogs. UAE businesses chose not to increase workforce numbers, with employment instead dropping for the second month in a row due to further declines in new orders and efforts to streamline staff costs," said the report.
In Saudi Arabia, February data pointed to more challenging business conditions across the non-oil private sector, with output, new orders and employment trends all losing momentum since the start of 2020.
Survey respondents indicated a moderation in their business confidence towards the year ahead outlook, with growth expectations the weakest since August 2018. A number of firms cited concerns about the global economic outlook, particularly in relation to China following the COVID-19 outbreak.
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.
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," he said.
- issacjohn@khaleejtimes.com
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