Uneven Recovery for Arab World’s Top Economies

(Bloomberg) --

Business conditions in the United Arab Emirates returned to growth but deteriorated in Saudi Arabia, a sign of an uneven recovery in the Gulf as the Arab world’s biggest economies reopen after shutdowns to contain the coronavirus pandemic.

Non-oil private sector activity in the UAE improved in June for the first time in six months and reached the strongest since October 2019, according to IHS Markit. By contrast, its Purchasing Managers’ Index for Saudi Arabia remained below the threshold of 50 that separates growth from contraction.

Saudi year-ahead business expectations turned negative for the first time since this index began in July 2012, although IHS Markit described the extent of pessimism as “only marginal.”

• Saudi Arabia’s PMI dropped to 47.7 last month from 48.1 in May, according to IHS Markit
  • The rate of decline in staffing numbers was the fastest since the survey began in August 2009
  • Business activity and new work also deteriorated at a quicker rate
• IHS Markit’s gauge for the UAE reached 50.4 from 46.7 a month earlier
  • The outlook for future activity improved for the first time since March
  • New orders grew the fastest since August 2019

Factories from Europe to China are seeing a turnaround as countries ease restrictions and life slowly returns to normal. But with lower oil prices tempering the momentum in the Gulf, the lack of a sustained decline in new virus cases could still hold back consumer spending and businesses.

Saudi Arabia has pushed ahead with normalization despite a spike in contagion. Just before tripling the value-added tax to 15% last week -- a measure many economists expect to hurt businesses and consumption -- the kingdom extended some private sector stimulus measures.

“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 in a report.

The UAE, home to regional business hub Dubai, has lifted its curfew and is now reopening for travel and tourism. Still, after declining from May’s peak of over 900 new virus cases a day to near 300 in June, the daily tally jumped to 716 on Saturday.

UAE companies continued to adjust by cutting costs in June, with the rate of job losses accelerating to one of the quickest seen in the series history, according to IHS Markit. But with the relaxation of coronavirus restrictions, more businesses grew upbeat that output will expand in the year ahead, it said.

“Despite this positivity, looking at the data over the past few months shows just how large a rebound in output is required to return the UAE economy to pre-COVID levels,” said David Owen, economist at IHS Markit. “Renewed growth in June marked only a slight reprieve from the downturn that reached its peak in April.”

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