Non-oil economic activity in Saudi Arabia and the UAE slowed in March, mirroring the decline in optimism across the world, as countries impose restrictions to contain the spread of the coronavirus pandemic.
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 – dropped to 42.4 in March from 52.5 in February. A reading above neutral 50 level indicates economic expansion and below points to a contraction.
March's result is the fastest downturn in the kingdom's business conditions for more than a decade and marks the first contraction since the survey began in August 2009, according to a statement on Sunday.
Survey respondents, contacted between March 12 and 23, "overwhelmingly" linked lower activity to business closures and delays to projects amid the global public health crisis.
A fall in business activity, new orders and stocks of purchases were listed as the main factors weighing on the PMI. The employment component of the economy, however, was relatively resilient, with staffing numbers falling only fractionally in the latest survey period.
The gauge in the UAE slipped to 45.2 in March, from 49.1 in February, marking the third monthly decline in the non-oil private sector. Firms reported sharp reductions in output, new orders and employment, while seeing notable delays to supplier deliveries as global supply chains remain disrupted.
Purchasing managers said the impact of Covid-19, in particular on tourism sector, consumer demand and exports, dragged the PMI down last month. Border controls also meant that trade with foreign clients declined since February.
The deterioration in business conditions is not exclusive to the Arab world's two largest economies. The decline is "evident in PMI surveys around the world, many of which fell below 40 last month", Khatija Haque, head of Emirates NBD Mena research said in a note on Sunday. "Activity is expected to rebound once the restrictions around the movement of people are lifted, and non-essential businesses are re-opened."
Longer shutdowns, however, would mean larger economic and financial costs for economies, she noted.
Economies around the world are struggling to cope with the fallout of the pandemic that forced nations to impose border restrictions and curb mass movement to slow the spread of the infection. The lockdowns across the US, eurozone, the UK and Asian economies have severely hampered economic activity.
More than 1.2 million people have been infected globally and fatalities have climbed to almost 65,000, according to the Johns Hopkins University, which is tracking the outbreak. Over 247,000 patients have recovered so far.
Factory activity slumped in the US and the UK last month with declines of export powerhouses Japan and South Korea overshadowing a modest improvement in China.
US Manufacturing PMI fell to 48.5 in March from 50.7 in February, the lowest since August 2009. The UK's services PMI plunged to 34.5 in March, its lowest level in more than 20 years. Japan's Services PMI dropped to 33.8 in March from 46.8 the previous month while South Korea’s PMI fell to 44.2 last month, the steepest decline in 11 years. The Caixin China services PMI rebounded to 43 in March from 26.5 in February.
Economic activity also tumbled in Indonesia, Vietnam and the Philippines, underscoring the widening damage brought by the pandemic as authorities continue to toughen restrictions.
Saudi Arabia, along with the UAE, are among the nations that have imposed stricter restrictions on peoples’ movements in recent days as the number of infections continue to rise.
The pandemic also affected Egypt's non-oil private sector economy in March, with disruptions to tourism and consumer spending resulting in a drop in both activity and sales. Employment weakened further in the Arab world’s most populous country.
Egypt's PMI gauge fell to 44.2 in March from 47.1 in February the sharpest decline since January 2017.
"The global economy is notably reeling from the effect of the Covid-19 pandemic, and March survey data showed that the Egyptian non-oil private sector was no exception,” David Owen, an economist at IHS Markit, said.
“On the positive side, despite firms seeing the US dollar rise leading to increased costs, overall input prices rose just marginally in March. This allowed a further drop in selling prices as businesses hoped to rejuvenate client spending.”
