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Khatija Haque - Head of Research & Chief Economist
Daniel Richards - MENA Economist
Published Date: 03 March 2021
The UAE’s headline PMI slipped to 50.6 in February from 51.2 in January, the lowest reading since November, indicating very little improvement in business conditions in the UAE’s private sector last month. This was attributed to tighter restrictions imposed on some sectors, particularly retail and services on the back of increased Covid-19 infections.
Output/ business activity increased at a slower rate in January, but there was no change in new orders in February after three months of growth. Export orders and employment were broadly flat as well last month. Suppliers’ delivery times increased with reports of raw material shortages and transport capacity issues. However, there was little inflationary pressure on input costs and selling prices declined slightly on average as some firms sought to increase client demand by offering discounts.
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 6% of respondents expected their output to be higher in 12 months’ time, according to the IHS Markit.
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.
Source: IHS Markit, Emirates NBD Research
Saudi Arabia’s headline PMI also declined in February to 53.9 from 57.1 in January, the lowest reading since October 2020. Output and new work growth slowed from January but remained solid. However, employment in the private sector contracted slightly again in February, despite six months of improving business activity. Staff costs also declined for the third month in a row as some firms reported lowering salaries.
There is little evidence of inflationary pressure in the PMI survey, with both input costs and output prices rising only marginally in February, and we continue to expect headline CPI to decline in H2 2021 once last year’s tax increases are in the base.
Source: IHS Markit, Emirates NBD Research
Egypt’s headline PMI index rose to 49.3 in February, up from 48.7 the previous month. While this still indicates a contraction in the non-oil private sector, the third in a row, the pace has slowed, and there was encouraging data within the survey’s sub-components. The export orders in particular were a bright point as they expanded at the quickest pace since mid-2018, with an especially strong acceleration compared to the previous month. Signs of life in the tourism sector helped boost higher export sales, which is encouraging for the year ahead as the industry hopefully looks ahead to a post-pandemic summer or autumn. Domestic new orders weighed on new orders as a whole as the Covid-19 pandemic crisis continues to negatively impact demand, but the contraction was at a far slower pace than seen over the preceding two months.
Egypt has not been immune to the steady upward tick in global food and energy prices, and purchase prices ticked up again in February. However, firms managed this through cutting staff costs as the deceleration in the sub-index quickened, helping them keep the rise in output prices fairly low, and slower than January. This bodes well for CPI inflation in Egypt ahead of the MPC meeting on March 18, as another low inflation print ahead of the meeting could pave the way for a 50bps cut to the benchmark overnight deposit rate.
The employment index fell for the 16th consecutive month, albeit at the slowest pace in the current downturn, and some firms reported that they had not filled positions vacated voluntarily while others reported hiring. Despite the ongoing decline in private sector jobs reported in the PMI employment index, the headline unemployment figure in Egypt has fallen to 7.2% at the close of last year, the lowest level in series data going back to 2005.
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