UAE: PMI moves into expansionary territory in September

UAE PMI September 2020

UAE: PMI moves into expansionary territory in September

The IHS Markit Purchasing Managers’ Index (PMI) rose to 51.0 in September from 49.4 in August. Consequently, the index broke through the 50-threshold separating growth from contraction, pointing to a slight improvement in business conditions in the non-oil private sector, and marking the highest print since October 2019. Nevertheless, the index still remained below its 54.3 trend level.

September’s increase was largely driven by output rising for the fourth consecutive month, and at a quicker pace than in August. Consumer demand continued to strengthen as restrictions were eased further, also encouraged by discounts, while foreign demand seemed to recover strongly, as firms reported rising export sales. Thanks to an increase in new orders, employment levels fell at the softest pace since May.

Looking ahead, however, firms’ outlook for the next 12 months remains pessimistic. Although the degree of confidence improved in September compared to August’s record low, it remained very subdued. The lack of confidence could reflect heightened uncertainty stemming from a rise in new Covid-19 cases throughout August and September.

Reflecting on this risk clouding the outlook, David Owen, an economist at IHS Markit, commented:

“More concerning is a recent rise in confirmed COVID-19 cases that could lead to lockdown restrictions being reimposed in the future. Given the weak nature of the current rebound, any further measures could lead to a “double-dip” in business activity. Reflecting the weak outlook, business sentiment was at its second-lowest level on record, only just above August’s historic low.”

Scott Livermore, chief economist at Oxford Economics, added:

“For now, the main risk is indeed from a second-wave of the coronavirus pandemic delaying the recovery in travel and tourism. We still expect non-oil GDP to expand by around 5% in 2021 and overall GDP growth of 3.3% after the declines seen this year, but the downside risks to this forecast have risen.”

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