Stock Dubai chamber of commerce and Industry
Private businesses clock steady gains in new orders, but August slowed down some of the momentum seen since June. Image Credit: WAM

Dubai: Job cuts are “stifling” an earlier recovery for the UAE economy even as private businesses reported more improvements in new orders during August.

But overall private sector sentiments slipped in August for the first time in three months, according to data from IHS Markit. “Growth in business activity slowed from July and was marginal,” the report said.

August’s PMI (purchasing managers index) was at 49.4, down from 50.8 in July, signaling a “slight deterioration in business conditions, ending a two-month sequence of growth”.

A question of costs

"For most businesses, the cut to jobs allowed them to remain in-step with the muted economic recovery after lockdown, as demand growth failed to gain further momentum," said David Owen, Economist at IHS Markit. "However, others emphasised it was to avoid closure in a period of weak sales and strong competition."

The “jobs data imprinted fresh concerns for the UAE non-oil private sector economy,” Owen added. “The PMI Employment Index fell to its lowest in over 11 years of data collection, signalling a sharp fall in workforces as firms shed excess capacity and clamped down on employee costs.”

Domestic demand

The three-month pickup in activity was brought on by higher domestic orders, even as “export sales declined for the second month in a row”.

Clouds of pessimism

But sentiment among private businesses continue to be weighed down. Their expectations of an improvement over the next 12 months "dropped to the lowest since April 2012". And several respondents in the survey reckon a weak recovery could lead to business closures, particularly as competition remained strong."

According to Owen, “Activity was again projected to rise, but only tentatively, as business sentiment dropped to its lowest on record. As such, firms reduced selling charges sharply in order to remain competitive amid an uncertain future."

Cut prices
The rising levels of demand partially reflects steeper price discounting. The decline in output charges reached its "strongest pace since December 2019", as businesses made further efforts to recover sales lost during the COVID-19 lockdown, according to IHS Markit.

"UAE firms made sharp reductions to employment in August. The rate of job losses was the strongest on record, as around one-in-five panellists cut workforce numbers, often citing the need to reduce business costs," the agency said.