Arab world's three largest economies bounce back in September as Covid restrictions ease

Saudi Arabia's PMI recorded first expansion in seven months, while the UAE's reading jumped to a 11-month high

STV looked at its overall contribution to direct employment in its first impact report. Reuters

The non-oil private sectors of the Arab world's three largest economies bounced back in September as movement restrictions eased and businesses continued to recover.

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 – rose to 50.7 after slipping to 48.8 in August. A reading above the neutral 50 level indicates an economic expansion, while a reading below the threshold points to a contraction.

Saudi Arabia's private sector economic growth, the first in seven months, was driven by a rise in output, new business and exports.

Firms saw a weaker rise in input costs during the month, as the impact of a rise in value-added tax (VAT) eased considerably since August. Output charges in September also rose more slowly, according to IHS Markit survey.

"Business activity in the Saudi Arabia non-oil private sector ticked up in September, supported by a return to sales growth as the economy started to find its footing after the Covid-19 lockdown," David Owen, an economist at IHS Markit, said. "Despite some businesses continuing to see a drag from ongoing restrictions, most companies saw market conditions improve."

The impact of a three-fold rise in VAT implemented in July, also "notably softened", after a sharp increase in prices and a dip in sales in August, while "cost inflation eased to just a marginal pace," Mr Owen said.

Supporting the non-oil economic expansion were positive readings for both the output and new orders sub-components of the PMI index. The increase, however, was marginal.

Panellists cited the loosening of Covid-19 restrictions among the reason for an upswing in demand that led to a rise in new work in September. The trend was supported by both an increase in foreign sales and rebound in domestic orders.

In line with the improvement in business conditions, firms in the kingdom were more optimistic of an increase in output over the coming year. Though the degree of confidence improved only slightly from August, it was the strongest seen for seven months.

The pandemic has upended global trade and severely disrupted the travel and tourism industry across the world. The health crisis tipped the global economy into the deepest recession since the Great Depression with the International Monetary Fund estimating global gross domestic product to shrink 4.9 per cent this year.

However, recent data suggests trade is bouncing back and some economies are recovering as business activity picks up with ease in travel restrictions.

The UAE headline PMI also jumped to 51 in September from 49.4 in August to the highest reading in 11 months. The overall lift in business conditions, marked a renewed expansion in the non-oil private sector of the country at the end of the third quarter.

The headline PMI posted above 50 for the third time since the introduction of coronavirus-related movement restrictions were enforced earlier in March.

Rising activity levels were supported by a solid upturn in new business, as companies noted a further rebound in consumer demand. Companies also reported higher export sales for only the second time in eight months.

"Higher demand was also supported by strong discounting efforts in September, the greatest since the end of 2019," Mr Owen said.

The inflow of new orders also led to a slower fall in private sector employment in September, the softest since May. Firms that lowered workforce numbers, however, said constraints on cash flow and business expenses still remain.

Egypt's non-oil private sector PMI rose to 50.4 in September from 49.4 in August, marking the first above-50 reading since July 2019.

Aiding the upturn was a third successive rise in new business, with the rate of sales growth accelerating to the strongest in over five years. Egyptian firms cited the loosening of Covid-19 restrictions among the reasons for a rise in market activity.

The reopening of the economy supported a rise in new orders and contracts, with export sales growing sharply.

"The latest Egypt PMI data offered more optimism for businesses," Mr Owen said. "This suggests the non-oil economy is seeing a modest turnaround after the devastating impact of the Covid-19 pandemic."

The economic improvement also led firms to ease back on job cutting in September, marking the softest drop in employment for 10 months.