Non-oil sector grown strong in UAE in the month of June


The UAE’s non-oil private sector witnessed strong growth in June, as the country continued to relax measures designed to stop the spread of Covid-19, new data showed on Sunday.

According to the IHS Markit UAE Purchasing Managers’ Index (PMI), new business rose at a solid pace, driving the first increase in output since last December.

The headline seasonally adjusted index – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – rose to 50.4 in June, to signal the first improvement in operating conditions for six months.

The upturn was also the strongest since October 2019, but still much weaker than the series average, and slight overall.

“At 50.4 in June, the UAE PMI signalled the first stage of recovery in the non-oil private sector. More firms are now seeing an increase in activity as opposed to a decline, while new orders grew at the fastest rate in ten months.

Businesses also saw an improvement in export conditions, as foreign new orders rose for the first time since January, albeit tentatively,” said said David Owen, economist at IHS Markit.

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. Renewed growth in June marked only a slight reprieve from the downturn that reached its peak in April. In addition, evidence from panellists suggested that balance sheets remain in a tricky situation, as firms made another solid cut to workforces in order to reduce costs. Thus it may be a long path to recovery for the labour market,” he added.

After-effects still being felt

Companies in the region are still feeling the after-effects from the lockdown measures, as efforts to cut costs further led to another fall in employment, while salaries were also reduced. Rising input demand meanwhile led to a rise in purchase prices, increasing overall costs for the second month running.

A more accurate picture of the recovery was given by the output sub-index, which indicated a solid rise in output at 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. In addition, firms also reduced staff costs in June, albeit at a softer rate than in the previous month.

Meanwhile, purchasing costs increased for the second month in a row, in part due to higher demand for inputs as firms started to see an improvement in new business. Overall cost pressures rose marginally, whereas selling charges fell again in a sequence stretching back to October 2018. Some firms reported offering promotions in order to help client demand rebuild following the pandemic.

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