UAE: PMI drops to contractionary territory in August

UAE PMI August 2020

UAE: PMI drops to contractionary territory in August

The IHS Markit Purchasing Managers’ Index (PMI) dropped to 49.4 in August from 50.8 in July. Consequently, the index fell below the 50-threshold separating growth from contraction, indicating a slight deterioration of business conditions in the non-oil private sector.

August’s fall was driven by record job losses as businesses attempted to cut costs and reduce prices to increase sales. Nevertheless, output and new orders continued to expand, although at softer paces than in July, on the back of expanding domestic demand in August. However, foreign demand contracted again, as exports declined for the second month in a row.

On the price front, August recorded the steepest decline in selling prices since December 2019, as businesses faced strong competition for sales, while the drop helped to support demand.

Looking ahead, firms’ outlook for the next 12-month period weakened notably, as reflected in business sentiment, which recorded its lowest print in the series’ history. The reading is likely due to uncertainty over the evolution of the virus, as a weak and slow recovery could lead to the closing of many businesses.

Reflecting on the outlook, David Owen, an economist at IHS Markit, noted:

“While business activity expanded for the third month in a row in August – albeit mildly – jobs data imprinted fresh concerns for the UAE non-oil private sector economy. The PMI Employment Index fell to its lowest in over 11 years of data collection, signalling a sharp fall in workforces as firms shedded excess capacity and clamped down on employee costs.”

Scott Livermore, chief economist at Oxford Economics, added a hint of optimism, noting:

“There remains cause for cautious optimism. Critical for determining the bounce-back in H2 will be new Covid-19 infections remaining under control and easing of lockdown restrictions. And while cases have picked up slightly and there are concerns some of the easing of restrictions may be reversed, the UAE now has one the lowest levels of lockdown stringency among world economies. And high-frequency metrics are also encouraging.”

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