Businesses activity in the non-oil private sector of the Arab world’s two biggest economies – Saudi Arabia and the UAE – expanded sharply in December as recovery from a coronavirus-induced economic slowdown continued.
The headline seasonally adjusted IHS Markit UAE Purchasing Managers' Index – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – rose to 51.2 in December from 49.5 in November to underline a renewed improvement in the sector's performance.
A reading above a neutral 50 level indicates economic expansion and below points to a contraction.
The latest data signalled a solid increase in non-oil business activity that grew at the second-fastest pace since September 2019 – behind July's recent high, according to the survey.
Output levels returned to growth territory at the end of the year. Firms attributed the surge to an improvement in market conditions and a sustained rise in client demand.
New business also surged in December at a “more marked pace compared to November's slight rate of expansion”. Anecdotal evidence linked the upturn to a solid rise in demand from abroad, particularly from Gulf countries. New export orders grew at the strongest rate in 15 months.
“Rising output and new orders, particularly from abroad, were key drivers of the renewed improvement in non-oil business conditions in December,” David Owen, an economist at IHS Markit, said. “Notably, the PMI rose above the 50 no-change threshold for the first time since September, and was at its highest level since August 2019.”
UAE firms also expanded purchasing activity in December, partly offsetting the reduction recorded in November. The rise in purchases helped firms to rebuild stock levels, which improved for the first time since August.
Cost pressures in the UAE also remained subdued at the end of the last year, with largely unchanged input prices. The outlook for the next 12 months of activity picked up slightly from November's record low.
Saudi Arabia and the UAE have opened up their economies and eased restrictions on peoples’ movements. The Gulf states have also rolled out Covid-19 inoculation programmes to curb the spread of the pandemic, which has helped in boosting the confidence of business owners.
But despite the vaccine breakthroughs, the number of Covid-19 infections is on the rise globally, especially in Europe and North America. As of Tuesday, the Covid-19 infections around the world crossed 86 million, with 1.86 million deaths, according to Worldometer, which tracks the pandemic.
Saudi Arabia’s non-oil private sector also enjoyed robust growth in December, its fourth successive month of expansion in business activity. A substantial increase in output and the fastest rise in new business for 12 months drove the surge.
The headline seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers' Index rose to its highest reading for 13 months in December to 57 in December, up from 54.7 in November.
“The Saudi Arabian non-oil economy is well on the path to recovery, according to December's PMI results,” Mr Owen said, adding that business activity has been helped by falling Covid-19 case numbers in the fourth quarter of 2020 in the kingdom, "despite other major economies suffering a second wave".
"The roll-out of a vaccine meanwhile led to increased optimism that demand will strengthen over the coming year."
The latest data signalled the fastest upturn in new business for a year. Businesses polled attributed this rise to improving market demand and price discounts at some companies. Firms raised their output levels for the fourth successive month in December at the quickest pace since November 2019.
Meanwhile Egypt, the Arab world's third-largest economy, saw a decline in non-oil business activity at the end of 2020. Falls in both output and new orders drove the deterioration in business conditions, as rising coronavirus cases affected demand.
The IHS Markit Egypt Purchasing Managers' Index fell to 48.2 in December, indicating a moderate deterioration in the health of the non-oil sector, after posting 50.9 in November.
The latest PMI data for Egypt reflected a "slightly depressed market environment as domestic Covid-19 cases rose again", Mr Owen said.
"Fears of a second wave of the pandemic and renewed lockdown measures meant some businesses held off from completing new orders in December, despite increased optimism for the future as Covid-19 vaccines begin to be distributed around the world."