Private sector economic activity improves at slower pace.

Non-oil private sector activity in the UAE and Saudi Arabia — the GCC’s two largest economies — improved at a slower pace in February and employment rate remained stable, according to the monthly Purchasing Managers’ Index (PMI) released by IHS Markit on Wednesday.

The UAE’s non-oil private sector expanded for the third consecutive month in February, though at a marginal pace.

The UAE’s February PMI – an indicator designed to give an accurate overview of operating conditions in the private sector – fell from 51.2 in January to 50.6 in February to indicate a slower and only marginal improvement in business conditions.

The UAE’s job market remained largely stable in February as output of the UAE firms expanded modestly.

“Employment numbers were largely stable in February, as unchanged sales volumes meant that companies saw little pressure on capacity and were able to lower backlogs for the sixth month running. Subdued jobs trends were also linked to expectations for output in the next 12 months which, despite improving to a five-month high, remained historically weak,” IHS Markit said in its monthly survey.

However, new restrictions made the near-term outlook more uncertain, although the rapid rollout of Covid-19 vaccines and projected new business gains from the Expo 2020 meant that firms were generally optimistic of an improvement in the economy later in the year.

“The tightening of Covid-19 restrictions in February had a notable impact on the UAE economy. New orders failed to grow for the first time since last October, while output growth softened since the start of the year. Reports of weaker demand were largely led by those sectors that saw the harshest restrictions, although some firms on the production side were also hard-hit by customs delays and global shipping problems.,” said David Owen, Economist at IHS Markit.

“The return to stricter lockdown measures meant that many firms’ expectations for future output growth remained subdued in February, despite the success of the UAE’s vaccine programme paving the way for a reopening of the economy later in the year. Only six per cent of businesses gave a positive outlook for the next 12 months, with overall sentiment remaining one of the weakest seen in the series history,” added Owen.

Khatija Haque, head of research and chief economist at Emirates NBD Research, said sentiment improved slightly in February but remains soft relative to the series history as firms are uncertain about the near term outlook, even with the UAE’s successful Covid-19 vaccine rollout. Only six per cent of respondents expected their output to be higher in 12 months’ time.

“We expect the recovery to gain momentum from Q2 as more people are vaccinated, global travel restrictions are eased and Expo 2020 supports a rebound in tourism in the final quarter of the year,” she added. In Saudi Arabia, the headline seasonally adjusted IHS Markit PMI posted at 53.9 in February, to indicate a solid improvement in the health of the non-oil private sector economy. The index fell from January’s recent high of 57.1 and was the lowest recorded in four months.

“The economic recovery in Saudi Arabia’s non-oil private sector lost some momentum in February… Nevertheless, the sector remained broadly on the right track, with new business inflows and export sales continuing to rise whilst firms also built inventories in anticipation of stronger future growth,” added Owen.

Egyptian non-oil private sector economic conditions weakened for a third month running in February. However, the pace of contraction softened from January and was marginal, helped by a record expansion in exports. The IHS Markit Egypt PMI posted 49.3 in February, up from 48.7 in January, signaling only a slight deterioration in operating conditions.

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