Arab world's largest economies continue growth momentum in March

Business activity in the non-oil private sector of the Arab world’s two biggest economies continued to expand in March, on the back of a Covid-19 vaccine roll out.

The IHS Markit Saudi Arabia Purchasing Managers' Index posted 53.3 in March, down from 53.9 in February, a slightly softer, but relatively solid upturn in the performance of the non-oil private sector economy. A reading above a neutral 50 level indicates economic expansion and below points to a contraction.

Non-oil businesses in the kingdom, the Arab world's largest economy, continued to see expansions in output and purchasing, and a stabilisation in job numbers that aided efforts to reduce outstanding work.

Despite the softer activity in March "we should still see an improvement in business activity reflected in official data for the first quarter of 2021,” David Owen, an economist at IHS Markit, said.

The kingdom's employment numbers were largely stable in the latest survey, pointing to one of the best job market performances since the period prior to the Covid-19 outbreak. Rising output encouraged firms to expand purchasing, although slower new order growth and efforts by some firms to run down stocks meant that buying activity rose only modestly.

The IHS Markit UAE PMI jumped to 52.6 in March from 50.6 in February, the sharpest uptick in 20 months and the fourth consecutive month of expansion fuelled by new business inflows and a sharp pick-up in the construction sector.

The key growth driver in the region's second largest economy was the Output Index, which registered its highest reading for over a year-and a-half and pointed to a sharp uplift in non-oil activity as demand rebounded on the back of the vaccine roll out that boosted business confidence and spending. Efforts to restart construction work was also a key factor to growth, according to the survey. Respondents noted a resumption of old projects and a rise in new work.

"Improving construction sector activity acted as a sorely-needed boost to the UAE non-oil economy in March, with the PMI gaining ground and posting its highest reading since mid-2019," Mr Owen said. "Business confidence improved to an eight-month high, with vaccine optimism driving confidence in future activity."

Hopes that pandemic-related restrictions will further ease in the coming months, contributed to a further improvement in business sentiment.

Both Saudi Arabia and the UAE have opened up their economies, easing some restrictions on businesses, as they roll out mass inoculation programmes to curb the pandemic.

Mass screening of the public and widespread vaccination remain central to the fight against the pandemic. The UAE has administered more than 8.6 million doses of vaccine, enough to vaccinate almost 40 per cent of the country's population, according to Bloomberg's vaccine tracker. The country has carried out 38.5 million tests since the pandemic began last March that has helped to restore confidence in markets and boosted business activity.

However, despite the global vaccination roll out, the world is still grappling with the second, and in some cases, third wave of Covid-19 infections that have resulted in fresh lockdown in parts of Europe, Asia and North America. Covid-19 infections globally have crossed 131 million, with 2.86 million fatalities as of Monday, according to Worldometer data.

Meanwhile in Egypt, the Arab world's third-largest economy, March data signalled a decline in non-oil private sector business activity, as new business fell for a fourth straight month.

The IHS Markit Egypt Purchasing Managers' Index fell to 48 in March from 49.3 in February. This marked the lowest reading since June 2020 and the quickest downturn since the initial impact of the Covid-19 outbreak.

However the outlook for future business activity was more positive, as businesses predicted economic conditions to improve with a greater reopening of the economy and the country's inoculation drive.

"The expansion of the vaccine programme to more demographics played a key part in boosting expectations," Mr Owen said, adding that it may be a sign of improving demand in the near term and a recovery in output in the second half of this year.