Business conditions improve in UAE

Output and new businesses rose in July with subdued growth

Business Editor

The UAE non-oil private sector registered a further recovery in business conditions during July amid a greater easing of lockdown restrictions, according to the latest Purchasing Manager’s Index.

The headline IHS Markit UAE PMI rose from 50.4 in June to 50.8 in July, to signal a second successive monthly improvement in business conditions. However, the rate of growth remained marginal and represented only a mild recovery from the downturn experienced by UAE businesses as a result of the coronavirus disease 2019 (Covid-19) pandemic.

Expanding business

“UAE business activity continued to expand at a solid pace in July, as firms enjoyed another upturn in new work. The further reopening of the economy, including

the lifting of curfew measures, helped to reinvigorate consumer spending. It was also particularly evident that future output sentiment depended on how demand recovered in the coming months,” said David Owen, Economist at IHS Markit.

Rising new business drove a solid upturn in activity. However, firms continued to lower employment in an effort to reduce payroll costs, while output charges fell at a sharper pace.

The further easing of lockdown restrictions helped to improve customer demand and drive an upturn in new business at the start of the third quarter.

Following June’s expansion, the latest increase was unchanged and solid overall. However, firms saw some weakness in sales to foreign customers with new export orders falling modestly, erasing the gains made in June.

The rise in total demand encouraged UAE firms to expand output again in July. The rate of growth was the fastest seen in ten months, albeit still signalling

a relatively mild improvement since lockdown. According to survey respondents, the starting of new projects and an increase in marketing partly drove the rise in activity.

Weak hiring

Whilst output and new orders rose further in July, hiring intentions among UAE businesses remained weak as employment declined for the seventh month in a row. Firms were reportedly able to cover the rise in new work with existing workforces, as signalled by a stable level of backlogs. At the same time, company requirements to offset business costs led several respondents to cut payroll numbers.

Employment fell for the seventh month in a row amid weak capacity pressures and efforts by companies to lower workforce costs. This acted as a drag on overall business conditions.