Arab world's two largest economies expand modestly in February

The non-oil economies of Saudi Arabia and UAE expanded above the neutral 50 mark

The Kingdom Tower, operated by Kingdom Holding Co., left, stands alongside the King Fahd highway, illuminated by the light trails of passing traffic, in Riyadh, Saudi Arabia, on Saturday, Jan. 9, 2016. Saudi Arabian stocks led Gulf Arab markets lower after oil extended its slump from the lowest close since 2004. Photographer: Waseem Obaidi/Bloomberg
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Business activity in the non-oil private sector of the Arab world’s two biggest economies, Saudi Arabia and the UAE, expanded modestly in February amid tightening restrictions to contain the Covid-19 pandemic.

The seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers' Index fell to 53.9 in February from January's recent high of 57.1. Though "a solid improvement in the health of the non-oil private sector economy," it was the lowest recorded in four months as both output and new orders expanded at weaker rates. A reading above the neutral 50 level indicates an economic expansion, while a reading below points to a contraction.

While the economic recovery in the kingdom's non-oil private sector softened in February, the sector "remained broadly on the right track, with new business inflows and export sales continuing to rise whilst firms also built inventories in anticipation of stronger future growth", IHS Markit economist David Owen, said.

Output, new orders and stocks of purchases sub-components drove the index into positive territory, despite each recording a lower reading than in January.

Companies attributed the increase in output to stronger client demand. However, the rate of growth softened for the first time since activity began to rise last September. Firms also saw higher inflows of new work, but the expansion slowed since the start of 2021.

Sales during the period were driven higher by improved business confidence and efforts to maintain competitive pricing strategies, according to panellists. Demand from foreign customers also rose but at a modest pace.


"Sentiment data suggests that companies expect a rocky start to 2021 as some countries remain under lockdown measures, but the roll out of Covid-19 vaccines around the world should bring a steep improvement in economic activity in the latter half of the year as the pandemic begins to ease," Mr Owen, said.

As of March 3, more than 265 million vaccines have been administered across 108 countries at a rate of 6.14 million doses a day, according to Bloomberg's vaccine tracker.

The UAE's headline seasonally adjusted IHS Markit Purchasing Managers' Index fell to 50.6 in February from 51.2 in January.

The index stayed above the 50 neutral threshold largely due to the output sub-component, which continued to signal a rise in business activity in the UAE non-oil economy.

However, the rate of output growth slowed from the previous month and was modest, due to weaker demand trends in retail and services sectors as a result of stricter Covid-19 restrictions that dented spending and stalled new order growth, according to the survey.

The impact on cost pressures was limited as input prices rose only slightly over the latest survey period and employment numbers were largely stable with companies seeing little pressure on capacity, allowing them to lower backlogs for the sixth month running.

Companies are optimistic that the economy will improve later in the year due to the roll out of Covid-19 vaccines and Expo 2020 Dubai, according to the IHS Markit report.

The UAE has administered more than six million doses of vaccine to the public since December and carried out 31 million tests since the pandemic began last March, the country’s health officials said this week.

Meanwhile in Egypt, the Arab world's third-largest economy, business conditions remained subdued in February, reflecting extended falls in output and new business.

The IHS Markit Egypt Purchasing Managers' Index rose slightly to 49.3 in February from 48.7 in January, below the 50 no-change mark for the third successive month.

Exports have picked up during the month, but input costs continue to rise due to higher raw material prices and freight charges, according to the survey results. Firms also expanded their staff during the month as work increased.