Business in the private non-oil sectors of the two largest economies in the Arab world continued to improve in August, with output growth leading to the fastest employment growth in the UAE since January 2018.
The IHS Markit Purchasing Managers index of Saudi Arabia showed the continuing dynamics in the kingdom’s non-oil economy, albeit at a slower pace. The index fell to 54.1 in August from 55.8 in July. A reading above 50 indicates economic expansion while anything below indicates a contraction.
Business in Saudi Arabia has steadily improved over the past 12 months as its economy recovers from the pandemic slowdown.
The latest figures show a sharp rise in start-ups in August, although, as with production, growth has slowed since July.
“The non-oil economy fell slightly to a boiling point in August as output growth fell to its weakest level in 10 months amid a slowdown in new corporate profits,” said David Owen, an economist at IHS Markit.
“Demand is still high, with almost three times as many companies seeing an increase in new orders from those in decline.”
Although pandemic challenges persist, domestic orders rose in August and the number of tourists to the kingdom increased, Owen said.
The output index declined, but still indicated a steady rise in non-oil activity, which the surveyed companies attributed to improved demand and easing of travel measures.
New start-ups in the kingdom continued to grow sharply during the month, albeit at a slower pace, in part due to a milder increase in export sales as the Delta viral variant led to an increase in Covid-19 cases in other parts of the world.
The pace of job creation has been unchanged since July, with companies finding that current production capacity was sufficient to complete existing work.
“Companies expect domestic business conditions to improve in the coming months,” however, the unpredictability of the pandemic means that negative risks remain, Mr Owens said.
The PMI for the UAE reached 53.8 in August, slightly lower than the 54 recorded in July. When, however, the second fastest improvement in the country’s private sector outside oil for more than two years.
As production requirements increase, private non-oil companies have also increased their employment levels at the fastest pace since early 2018.
August data showed that business activity in the UAE grew at the fastest pace since July 2019, due to improving demand as the economy continued to recover with easing of pandemic-related constraints.
New orders in the country increased for the sixth consecutive month, although the growth rate slowed slightly from the recent high in July.
“The PMI data marks another strong rise in business activity across the non-oil sector in August, as demand continued to recover from the pandemic,” Owen said. “This is increasingly being fueled by corporate recruitment decisions, with employment numbers on the rise.”
The uneven economic recovery and renewed travel restrictions in some parts of the world due to rising cases of the Covid-19 Delta variant reduced foreign demand in August. Despite continuous delays in shipping, the latest figures suggest that supply-side conditions are improving with total delivery times declining for the first time since January this year.
The outlook for the UAE private sector non-oil economy remained positive in August, with companies “hoping to gain investment from Expo 2020 and benefit from a general economic recovery,” according to the survey.
Both Saudi Arabia and the UAE have launched extensive Covid-19 mass vaccination campaigns. The UAE has eased some travel restrictions as the number of Covid-19 cases continues to decline in the UAE.
The UAE has given more than 18.3 million doses of vaccine, enough to vaccinate more than 85% of the country’s population. Nearly 76 million PCR tests have been performed to date and about 71% of people in the country have received two doses of the vaccine. So far, 37.8 million vaccines have been administered in Saudi Arabia, enough for more than 55% of the kingdom’s population, according to the Bloomberg Vaccine Tracker.
Meanwhile, business conditions in Egypt’s oil-free private sector economy improved to just one level below the neutral threshold of 50 in August. The PMI rose to 49.8 in August from 49.1 in July, just shy of the seven-month high of June.
Although the PMI was still shrinking, it was “hiding new increases in production and new orders” in August to indicate that companies had taken further steps to recover from the Covid-19 pandemic, according to the survey.
Updated: September 5, 2021, 9:44 a.m.