Stock Abu Dhabi airport passengers
Job cuts remain the easiest option for private businesses to get a grip on their costs. Image Credit: Gulf News Archive

Dubai: There was a marked dip in the UAE's private sector activity during October - the second time it has happened in the last three months. In particular, new business orders declined for the first time since May, according to the monthly updates from IHS Markit, and this is leading to further reductions in the workforce.

"Sentiment amongst businesses towards the 12-month outlook was at a joint-record low as firms remained concerned that the pandemic could further hurt activity and spending," said David Owen, Economist at IHS Markit. "Firms are notably concerned that costs will outstrip revenues, leading to a further cut to payroll numbers and a sharper fall in inventories amid efforts to free-up liquidity."

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The one plus in all this is that inflationary pressures are still not visible. "This should reduce pressure on margins as selling prices continue to be lowered due to efforts to drum up sales," said Owen.

Competition eats into sales

The slower than expected pace of recovery as well as increased competition are cited as the main reasons for the October dip in sales. Exports options remain under pressure as fresh bursts in COVID-19 cases hit some regions. But once again, UAE businesses were slightly bolstered by orders from elsewhere in the Gulf.

The UAE 'Purchasing Managers' Index' (PMI) – an indicator of operating conditions in the non-oil private sector economy – posted 49.5, and down from 51 in September.

Pressure on jobs

If orders drop further, there will be less inclination among businesses to relaunch hiring any time soon. According to IHS Markit, data points to further declines in workforce numbers this quarter. "Firms often commented that they needed to cut costs after the lockdown and that a slow recovery had underpinned weak revenues," the report states. "As such, there was also evidence of declining input stocks" to improve liquidity.

UAE companies were able to bring down their backlogs to their lowest point since November 2011.