Two largest economies in the Arab world record modest growth in February

Business activity in the nonoil 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.

Although “a solid improvement in the health of the nonoil 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 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 while firms also built inventories in anticipation of stronger future growth”, said IHS Markit economist David Owen.

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. Companies also registered higher inflows of new work, but the expansion has 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 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 yesterday, 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 owing to the output sub-component, which continued to signal a rise in business activity in the UAE’s non-oil economy.

However, the rate of output growth slowed from the previous month and was modest because of weaker demand in retail and services sectors. This was a result of stricter Covid-19 restrictions that dented spending.

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

Companies are optimistic that the economy will improve later in the year thanks to Covid-19 vaccines and Expo 2020 Dubai, according to the IHS Markit report. The UAE has administered more than 6 million doses of vaccine since December and carried out 31 million tests since the pandemic began last March.

Companies are optimistic that the economy will improve later in the year thanks to Covid-19 vaccines and Expo 2020