Abu Dhabi, UAEThursday 24 September 2020

Non-oil activity in Arab world's largest economies fell marginally in August

Business confidence in Saudi Arabia last month was at a six-month high despite activity slipping

Newly-imposed VAT changes stalled consumer spending across the Saudi Arabia economy in August, latest PMI data suggested. Bloomberg
Newly-imposed VAT changes stalled consumer spending across the Saudi Arabia economy in August, latest PMI data suggested. Bloomberg

Non-oil activity in the Arab world’s two largest economies marginally fell in August amid a global coronavirus induced economic slowdown.

The seasonally-adjusted IHS Markit Saudi Arabia Purchasing Managers' Index – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – slipped to 48.8 in August from 50.0 in July. A reading above the neutral 50 level indicates economic expansion and below points to a contraction.

"Newly-imposed VAT changes stalled consumer spending across the Saudi Arabia economy in August, latest PMI data suggested,” David Owen, an economist at IHS Markit, said. “New business was down solidly from July, as several firms commented that the sharp uptick in prices kept some customers away from markets.”

Saudi Arabia increased VAT charges to 15 per cent from 5 per cent on July 1. Firms reported the sharpest uptick in input costs since September 2012, as suppliers hiked prices for raw materials, according to IHS Markit. In addition, output charges grew at the fastest pace in 11 years.

Still, there was growing confidence regarding future private sector activity in Saudi Arabia due to the reopening of the economy.

"Some areas saw an improvement though, especially with firms highlighting a pick-up in tourism,” Mr Owen said.

"Business confidence strengthened to its highest for six months while inventories also expanded, suggesting there are positive signs for future growth,” Mr Owen said.

The coronavirus pandemic has disrupted the global travel and tourism industry and tipped the global economy into a recession, expected to be the deepest since the Great Depression, according to the International Monetary Fund. In June, the multilateral lender forecast global gross domestic product would shrink by 4.9 per cent this year.

The seasonally-adjusted IHS Markit UAE Purchasing Managers' Index fell marginally to 49.4 in August from 50.8 in July. A number of firms cut jobs to weather the coronavirus induced economic slowdown.

Despite the slowdown, business activity and demand continued to grow during the month, with firms reporting a "solid upturn in new flows", IHS Markit said.

In Egypt, North Africa's largest economy, August PMI data indicated a growth in activity and demand in the country’s non-oil economy for the second month in a row. However, job losses led to an overall “deterioration” in business conditions.

The IHS Markit Egypt Purchasing Managers’ Index fell to 49.4 in August, from 49.6 in July.

“Consumer demand remains weak, with new business picking up at only tentative rates in both July and August. As a result, employment levels were not sustained, with firms reporting a strong cut to workforce numbers,” Mr Owen said.

Updated: September 3, 2020 01:26 PM

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