The UAE non-oil private sector economy suffered its first decline in business conditions for three months in August, latest PMI data showed, as record job cuts stifled the sector's recovery from the impact of the coronavirus .
The seasonally adjusted IHS Markit UAE Purchasing Managers Index - a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy - fell below the 50.0 mark separating growth from contraction in August.
Growth in business activity slowed from July and was marginal, as sales rose solidly but were supported by the quickest drop in output charges since the end of 2019.
David Owen, Economist at IHS Markit, said: "While business activity expanded for the third month in a row in August - albeit mildly - jobs data imprinted fresh concerns for the UAE non-oil private sector economy. The PMI Employment Index fell to its lowest in over 11 years of data collection, signalling a sharp fall in workforces as firms shedded excess capacity and clamped down on employee costs."
Output and New Orders sub-indices indicated that activity and demand continued to expand during August. Firms reported a solid upturn in new business inflows, which was primarily down to higher domestic spending as export sales declined for the second month in a row.
Subdued business conditions were reflected in business sentiment for the next 12 months, which dropped to the lowest seen in the series history (since April 2012). Several firms noted the weak recovery could lead to business closures, particularly as competition remained strong.
As a result, UAE firms made sharp reductions to employment in August. The rate of job losses was notably the strongest on record, as around one-in-five panelists cut workforce numbers, often citing the need to reduce business costs.
"For most businesses, the cut to jobs allowed them to remain in-step with the muted economic recovery after lockdown, as demand growth failed to gain further momentum. However, others emphasised it was to avoid closure in a period of weak sales and strong competition," Owen said.
Backlogs of work increased during the month, but respondents indicated that this was often due to clients delaying payments for goods and services rather than pressure on capacity.
(Writing by Seban Scaria; editing by Daniel Luiz)
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