Business activity in the UAE non-oil private sector continued to decline in March due to the coronavirus disease (COVID-19) pandemic. Firms reported notable reductions in output, new orders and employment, whilst seeing delays to supplier deliveries.
The headline seasonally adjusted IHS Markit UAE Purchasing Managers' Index (PMI) -- a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy -- dropped to a record low of 45.2 in March, from 49.1 in February, to signal a notable change in operating conditions at the end of the first quarter.
This marked the third monthly decline in the health of the non-oil private sector in a row. The headline index was notably dragged down by the new orders sub-component, which fell at the quickest pace on record to indicate a substantial drop in new business at UAE non-oil companies. This was widely linked by panelists to the impact of the COVID-19 pandemic, in particular on tourism, consumer demand, and exports.
Border controls also meant that trade with foreign clients was down sharply since February. The decline in overall demand led firms to take steps to reduce activity and costs in March. Output was reduced for the second month running, and at a faster pace compared to February. However, part of the downturn was offset by higher activity at food sellers amid greater bulk-buying from consumers.
In addition, firms continued to lower overall employment, extending the current period of decline to three months. The latest decrease was the sharpest on record.
David Owen, economist at IHS Markit, said the UAE's non-oil private sector suffered a notable decline in business conditions in March, accelerated by the Covid-19 pandemic. "New business volumes fell at a steep pace, driven by lower customer sales, reduced tourism and weaker trade as countries across the world closed borders."
"Firms rapidly took measures to ease cost pressures, lowering activity, purchases and workforce numbers. As a result, there was little change in total input costs overall," he said. Meanwhile, he said the closure of airports in the UAE and working-from-home policies, as seen across the globe, are likely to extend the downturn into April, particularly as there is no end in sight to the pandemic.
As well as businesses shedding jobs, many asked employees to reduce hours in order to further minimise costs. The downturn also extended into firms' buying activity in March, as purchases were reduced slightly from the previous month. Stocks of inputs were also limited amid weaker demand trends and a slowdown in delivery times caused by the Covid-19 outbreak. Lead times lengthened at the quickest pace in the series history, albeit only moderately overall.
Meanwhile, softer demand meant that clients of UAE businesses struggled to pay for current sales in the latest period, leaving those orders on hold. As a result, the volume of outstanding work increased at the quickest rate for over a year.
Overall input costs were broadly stable over the course of March, as efforts to reduce costs helped to offset higher raw material prices at some suppliers. Firms also noted that a slump in oil prices helped to ease total expenses. Output prices were subsequently lowered for the eighteenth month running, as firms sought to remain competitive in the domestic market. The rate of charge reduction quickened from February.
Future output expectations remained at a relatively downbeat level compared to the past two years in March, despite strengthening slightly from February's recent low. The Expo 2020 remained a key source of optimism, though some were concerned of its viability in a potentially weak year for global growth.
