UAE's non-oil private sector economy returns to growth in June as pandemic restrictions ease

New orders grew at a solid rate, driving the first increase in output since December

Dubai Municipality fees and tourism fees charged on hotel stays are being halved until the end of 2020. Reem Mohammed / The National

The UAE's non-oil private sector economy returned to growth in June, the first increase in output since December, as the Arab world’s second-largest economy continued to relax restrictions put in place to stem the spread of the coronavirus pandemic.

The 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 – improved to 50.4 in June from 46.7 in May. New business in the emirates drove the first improvement in operating conditions for six months.

The upturn was also the strongest since October 2019, but weaker than the series average. A reading above a neutral 50 level indicates economic expansion and below points to a contraction.

"At 50.4 in June, the UAE PMI signalled the first stage of recovery in the non-oil private sector,” David Owen, an economist at IHS Markit, said. “More firms are now seeing an increase in activity as opposed to a decline, while new orders grew at the fastest rate in 10 months. Businesses also saw an improvement in export conditions, as foreign new orders rose for the first time since January, albeit tentatively.”

A more accurate picture of the recovery was depicted by the output sub-index, which indicated a solid rise in activity in non-oil businesses that also marked the first monthly expansion seen in 2020 so far.

New orders grew at a solid rate as well, the fastest since August 2019, as client demand both at home and abroad improved following the relaxing of lockdown measures, according to the survey.

The headline index was also supported by the suppliers' delivery-time component, which rose above 50 for the first time since February and indicated a strong improvement in vendor performance over the month. Increased economic activity and relaxed movement helped suppliers to partly return to normal services, shortening lead-time down from May level.

Despite the rise in sales, efforts to limit costs meant firms continued to lower employment during June. Staff costs were reduced in June, albeit at a softer rate than in the previous month.

The outlook for future economic activity improved for the first time since March, as optimism grew that output will expand in the year ahead. Businesses cited relaxations in Covid-19 measures as a reason for buoyant outlook, hoping for a further recovery in demand. The optimism for greater sales have also driven a slight increase in input stocks for the second month in a row, according to the survey.

The rise in the UAE PMI is in line with improvement in purchasing managers' indexes and production gauges in some of the developed and emerging economies as they come out of government-imposed lockdowns.

A gauge of China’s manufacturing activity climbed in June to 50.9 from 50.6 a month earlier, signalling the country’s gradual recovery from the coronavirus slump remains on track. The IHS Markit Eurozone PMI Composite Output Index has also rebounded for a second successive month during June to 48.5, from May’s 31.9, the index's best level in four months.

The pandemic, however, remains the greatest challenge for the world economy, which is set to slide this year into the deepest recession since the Great Depression and forecast to contract 4.9 per cent, according to the International Monetary Fund. Economies are gradually opening up but the rate of infection in Americas and some Asian economies including the US, Brazil and India is still on the rise.

Saudi Arabia, the Arab world's biggest economy is also gradually opening up after a strict lockdown. Its seasonally-adjusted IHS Markit Purchasing Managers' Index slipped to 47.7 in June from 48.1 in May. Survey respondents cited disruption to business operations and subdued customer demand amid the pandemic as the reasons for slight pullback in output during the data were collected between June 12 and 22.

"June data highlighted another difficult month for Saudi Arabia's non-oil private sector economy, with cautious business and consumer spending patterns widely reported to have held back new order intakes,” Tim Moore, economics director at IHS Markit, said.

Reductions in business activity, new work and employment were the main factors leading to a decline in the headline PMI during June, Mr Moore said, adding that the speed of the downturn, however, remains less steep than in March and April.