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Jobs, orders and output falter in UAE and Saudi

Business activity in the UAE and Saudi Arabia dropped steeply last month, indicating the Gulf may be feeling the effects of a global growth downturn.

Business activity in the UAE and Saudi Arabia dropped last month as seasonal factors and deteriorating global growth hit Gulf economies.

HSBC's headline purchasing managers' index (PMI) in the UAE fell the most since the survey began in August 2009. Output, employment and new orders all slowed. In Saudi Arabia, the index dropped to an 18-month low.

The bank said, however, that seasonal factors such as Ramadan and the summer holiday may mean the decline has been overstated.

"This is the second or third month-on-month decline in the UAE, and you have to come to the conclusion that the numbers are strongly suggesting the boost in the first half of the year is dissipating," said Simon Williams, the chief economist of HSBC in the Middle East and North Africa (Mena) region

Signs of slowing growth are emerging in the economies of the US, Europe and China. From jobs growth in the US grinding to a halt to weak manufacturing data in the euro zone, major economies have been cooling in the second half of the year.

PMI data is an important gauge of activity in the services and manufacturing sectors of an economy.

In the UAE, the data had been picking up earlier this year as the country's trade, financial services and tourism sectors took advantage of unrest in other regional markets.

But the latest data suggests those benefits may be waning.

The UAE headline score last month dropped 2.5 points to 50.9, its lowest level in 14 months and hovering close to the 50-point level indicating a contraction.

Output dropped by more than four points compared with the previous month, the fourth drop in a row. New orders extended declines recorded in July, while employment growth also slowed.

Business margins were also squeezed by a further increase in input costs and a drop in output prices.

Although PMI data is seasonally adjusted, the onset of Ramadan last month may not have been accounted for in the survey, Mr Williams said.

But he said the index still suggested the UAE economy was losing momentum.

"The concern is that in the coming months a deteriorating global economy will have an impact on demand for services and potentially access to funding," he said.

In Saudi Arabia, the headline PMI score slipped by 2 points to 58, the lowest reading in 18 months.

A marked decline in output and new orders indicated the kingdom's economy was slowing.

A decline in new export orders signalled much of the weakness in Saudi activity last month was because of ebbing foreign demand for goods and services.

The positive impact to the economy from government stimulus in the first quarter may also be sliding, said HSBC.

In response to pockets of unrest in the kingdom and instability across the Mena region this year, King Abdullah unveiled expenditure increases in February and March totalling US$129 billion (Dh473.8bn), targeting cash handouts and social infrastructure improvements.

 

tarnold@thenational.ae

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