Business activity in the non-oil private sector of the two largest economies of the Arab countries continued to expand in March due to the use of the Covid-19 vaccine.
Saudi Arabia’s IHS Markit Purchasing Managers Index posted 53.3 in March, up from 53.9 in February, a slightly softer but relatively significant upturn in the non-oil private sector economy. A reading above the neutral level of 50 indicates economic growth, and below indicates a reduction.
Oil companies in the kingdom, the largest economy in the Arab world, continued to see an increase in production and procurement, as well as a stabilization in the number of jobs, which contributed to efforts to reduce outstanding work.
Despite the milder activity in March, “we should still see an improvement in business activity as reflected in official data for the first quarter of 2021,” said David Owen, an economist at IHS Markit.
In the last survey, the number of people employed in the kingdom was mostly stable, indicating one of the best indicators in the labor market before the Covid-19 outbreak. Rising output has prompted firms to expand their purchases, although slower growth in new orders and efforts by some firms to reduce inventories have meant that purchasing activity has grown only slightly.
PMI in the UAE IHS Markit jumped to 52.6 in March from 50.6 in February, the strongest rise in 20 months and the fourth month in a row, expanded by new business inflows and a sharp rise in the construction sector.
A key growth factor in the region’s second-largest economy was the production index, which peaked in a year and a half and showed a sharp rise in non-oil activity as demand recovered at the back of the vaccine, boosting confidence and business costs. According to the survey, efforts to resume construction work have also been a key growth factor. Respondents noted the restoration of old projects and an increase in the number of new works.
“Improving performance in the construction sector was a much-needed stimulus for the development of the UAE’s non-oil economy in March, when PMI won its position and published the highest figures since mid-2019,” Owen said. “Business confidence has risen to an eight-month high, and vaccine optimism has boosted confidence in future operations.”
Hopes that the pandemic restrictions will ease even more in the coming months have helped to improve business sentiment.
Both Saudi Arabia and the UAE have opened up their economies by easing some restrictions on business by deploying mass vaccination programs to contain the pandemic.
Improving performance in the construction sector was a much-needed stimulus for the UAE’s non-oil economy in March, when PMI gained popularity and published the highest figures since mid-2019.
David Owen, IHS Markit economist
Mass public screening and widespread vaccination remain central to the fight against the pandemic. The UAE has administered more than 8.6 million doses of the vaccine, enough to vaccinate nearly 40 percent of the country’s population, according to Bloomberg Vaccine Tracker. Since the start of the pandemic in March last year, the country has conducted 38.5 million trials that have helped restore confidence in markets and boost business activity.
However, despite global vaccination, the world is still battling a second and in some cases a third wave of Covid-19 infections, leading to new blockades in parts of Europe, Asia and North America. According to Worldometer, Covid-19 infection has crossed 131 million worldwide, up from 2.86 million as of Monday.
In Egypt, meanwhile, the Arab world’s third-largest economy, March data show a decline in private sector non-oil business activity as new business fell for the fourth month in a row.
The IHS Markit Egypt Purchasing Manager index fell to 48 in March from 49.3 in February. This was the lowest figure since June 2020 and the fastest decline since the initial impact of the Covid-19 outbreak.
However, the outlook for further business activity was more positive, as businesses predicted an improvement in economic conditions with greater economic recovery and an incentive to vaccinate in the country.
“Expanding the vaccine program to more demographics has played a key role in raising expectations,” Owen said, adding that it could be a sign of improved demand in the near future and a resumption of production in the second half of this year.
Updated: April 5, 2021 12:50 PM