Job losses weigh on regional PMIs

Khatija Haque - Head of Research & Chief Economist
Published Date: 03 September 2020

 

The UAE’s headline PMI declined to 49.4 in August from 50.8 in July, and was the first reading below the neutral 50-level that separates expansion from contraction since May.  While business activity continued to recover in August, and new orders increased for the third consecutive month, this was outweighed by a steep decline in private sector jobs.  The employment index fell to a series low of 41.5, from 47.5 in July, as 20% of panelists indicated they had reduced their headcount in a bid to curb costs and no firms reported new hiring.  With the employment component accounting for 20% of the headline PMI, this offset the rise in output and new work last month.

The growth in new work in August was likely underpinned by further price discounting – selling prices declined at the fastest rate this year in August even as input costs were fractionally higher – squeezing margins further.

Stocks of inventories increased the most since April 2019, while supplier delivery times shortened as supply chains normalized. However, the future output index declined to 51.7 in August from 58.0 in July, with only 7% of firms surveyed expecting their output to be higher in a year’s time, according to IHS Markit.

UAE PMI components

Source: IHS Markit, Emirates NBD Research

Saudi Arabia’s headline PMI declined to 48.8 in August from 50.0 in July.  Output and new work declined at a faster rate than in July, with higher prices likely weighing on domestic demand. Both input costs and selling prices rose sharply in August, reflecting the impact of the hike in VAT to 15% which came into effect in July.  However, weak external demand has also weighed on Saudi Arabia’s recovery as new export orders declined for the sixth month in a row in August.

Private sector employment declined again in August but at a weaker rate than in July.  Staff costs (a proxy for wages) were also fractionally lower as firms continued efforts to curb costs. However, firms were more optimistic  about their future output, with this index rising to 57.6 last month, the highest level since February.

Saudi Arabia PMI components 

Source: IHS Markit, Emirates NBD Research