UAE: PMI falls to contractionary territory in October

UAE PMI October 2020

UAE: PMI falls to contractionary territory in October

The IHS Markit Purchasing Managers’ Index (PMI) dropped to 49.5 in October from 51.0 in September. As such, the index fell below the 50-threshold separating expansion from contraction, signaling a slight deterioration in business conditions in the non-oil private sector.

October’s drop was largely driven by a slowdown in output growth, while new business declined marginally. Sales volumes were weaker in October as firms reported higher competition, while exports grew only mildly due to a rapid increase in new Covid-19 cases in some regions. Consequently, employment levels declined as firms needed to reduce costs amid falling demand and a slowing economic recovery after the lockdown.

Looking ahead, firms’ outlook for the next 12 months dropped to the same level as August, which had marked the lowest print on record, due to lingering uncertainty over the pandemic.

David Owen, economist at IHS Markit, commented on the risks ahead:

“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. Notably, sentiment amongst 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.”

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