Mideast countries’ non-oil private sector shrinks amid COVID-19 pandemic

The UAE non-oil private sector also fell to a record rate for the second month running in April, as lockdown measures to fight the coronavirus pandemic piled pressure on an already sluggish economy. (File/AFP)
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Updated 05 May 2020

Mideast countries’ non-oil private sector shrinks amid COVID-19 pandemic

  • Saudi Arabia's private sector shrank for the second consecutive month in April
  • Egypt was also hit by a shutdown in the tourism industry

Revenue of non-oil private sectors across the Middle East shrank, as coronavirus-prompted lockdowns hammered the economy, reports showed.

Saudi Arabia

Saudi Arabia's non-oil private sector shrank for the second consecutive month in April and its output hit a record low as lockdowns and business closures to tackle the new coronavirus hammered the economy, a survey showed on Tuesday.
The seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers' Index (PMI) rose slightly to 44.4 in April from 42.4 in March, which was the lowest reading since the survey began in August 2009.
April is only the second time the headline index has fallen below the 50.0 mark that separates growth from contraction. The slight rise from March reflected "a slower reduction in new work and a stronger contribution from the suppliers' delivery times component," the survey compilers wrote in a report.
"Saudi Arabian private sector output fell at the fastest pace since the survey began more than a decade ago, reflecting widespread business closures and a sharp reduction in customer demand," said Tim Moore, economics director at IHS Markit.
"Export sales and international supply chains were also severely impacted by the global COVID-19 pandemic in April, with both indices hitting survey-record lows," he said.
As of May 3, Saudi Arabia had reported 27,011 cases of COVID-19, the disease caused by the new coronavirus, and 184 deaths - both the highest out of the six Gulf Cooperation Council countries.
The kingdom has taken strict measures to curb the virus, including curfews, business closures and travel restrictions. It has allowed some malls to reopen for limited hours, but restaurants, schools, mosques and other public places remain shut.

Egypt

Egypt was also hit by a shutdown in the tourism industry, weakening demand and the imposition of a curfew as the government battled the new coronavirus pandemic.
IHS Markit's PMI for the non-oil private sector came in at 29.7 last month, down from 44.2 in March and far below the 50.0 threshold that separates growth from contraction. It was the lowest reading since the survey began nine years ago.
"The reading signalled a severe decline in business conditions," IHS Markit said.
The pandemic led firms to put in place large cost-saving measures, including labour reductions, and caused some to close altogether, IHS Markit said.
The novel coronavirus's spread virtually shut down Egyptian tourism, which International Cooperation Minister Rania al-Mashat last week said accounted for 5% of gross domestic product. The last scheduled airline flights to Egypt ended on March 19.
Restaurants, coffee shops and hotels have also been shut down, and a curfew is in place from 9:00 pm to 6:00 am.
"Businesses lucky enough to remain open scaled back activity on a massive scale, as many highlighted sharp falls in domestic sales and foreign demand," said IHS Markit economist David Owen.
The new orders subindex plunged to 14.1 from 40.2 in March, the worst reading in the last nine years. Purchasing slid to 21.0 from 39.5 in March as companies drew down inventories in the face of uncertain demand.
The contraction in staffing, however, remained relatively subdued, with the employment subindex inching down to 46.1 from 47.0.
"Business expectations remain strong though, in fact improving since March, which may suggest firms will look to retain workforces for when the economy reopens," Owen said.

UAE

The United Arab Emirates' (UAE) non-oil private sector also fell to a record rate for the second month running in April, as lockdown measures to fight the coronavirus pandemic piled pressure on an already sluggish economy.
The seasonally adjusted IHS Markit UAE Purchasing Managers' Index (PMI), which covers manufacturing and services, fell to 44.1 in April from 45.2 in March. The 50.0 mark separates expansion from contraction.
The output and new export orders sub-indices fell sharply, both falling to record lows since the survey began in August 2009. Output tumbled to 39.9 in April from 47.2 in March.
"Shop closures and restrictions in domestic and international travel had huge repercussions on new business, which fell at an unprecedented pace after also declining sharply during March," said Owen.
"Business sentiment reached the lowest in nearly three years, reflecting heightened uncertainty from the COVID-19 crisis. While firms on balance remain optimistic of growth in the coming year, some panelists were apprehensive, noting that the risk of an economic downturn was increasing," Owen said.
As of May 3, the UAE had reported 14,163 cases of the novel coronavirus and 126 deaths, the highest number of deaths after Saudi Arabia among the six Gulf Cooperation Council countries.
The authorities have imposed strict lockdown measures to stem the spread of the virus, including a 24-hour curfew in Dubai that was eased in late April as the Muslim fasting month of Ramadan began.
Malls, dine-in restaurants and cafes in Dubai, the country's business and tourism hub, were allowed to resume operations with limited capacity. This week, malls in the capital Abu Dhabi began to reopen and Sharjah followed.
But travel, tourism and trade, major contributors to the economy, both remain largely at a halt.
"Tourism declined sharply again, as countries worldwide imposed similar restrictions amid the virus pandemic. Along with reduced demand from foreign clients, this led to a steep fall in export business, one that was unprecedented in the survey history," the report said.
New export orders fell to 35.2 in April from 44.3 in March.


Oil surges on hopes of new deal on output cuts

Updated 02 June 2020

Oil surges on hopes of new deal on output cuts

  • Brent price has doubled in five weeks
  • OPEC talks may be brought forward

DUBAI: Oil prices surged toward $40 a barrel on Monday as hopes rose for an early agreement to extend the big production cuts agreed by Saudi Arabia and Russia under the OPEC+ alliance.

Brent, the global benchmark, jumped by more 9 percent to nearly $39, continuing the surge that has doubled the price in five weeks — the best performance in its history. It recovered after record supply cuts agreed between the 23 countries of the OPEC+ partnership, and enforced cuts in US shale oil.

DME Oman crude, the regional benchmark in which a lot of Saudi Aramco exports are priced, rose above $40 a barrel for the first time since early March.

Market sentiment was buoyed by the possibility that the Organization of Petroleum Exporting Countries would agree with non-OPEC members to extend the cuts for a longer period than was agreed in April.

Oil analysts expect OPEC to fast track a “virtual” meeting to formally agree to maintaining cuts at the record 9.7 million barrels a day level. The meeting was scheduled for June 9, but bringing it forward would allow producers more time to set pricing levels.

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An official with one OPEC delegation told Arab News there was consensus among the 23 OPEC+ members for the new date, which could be as early as June 4. The meeting will also consider how long the current level of cuts would be maintained. Some OPEC members want it to run to the end of the year, other producers would prefer a two-month extension.

Omar Najia, global head of derivatives with trader BB Energy, told a forum run by Gulf Intelligence consultancy: “I’d be amazed if OPEC did not extend the higher level of cuts. As long as Saudi Arabia and Russia continue saying nice things to each other I’d expect the rally to continue.”

A Moscow source close to the oil industry said energy officials there had come to the conclusion that “the deal is working” and it was important to keep prices at an “acceptable” level.

Sentiment was also affected by a comparatively high level of compliance with the new cuts, running at about 75 percent among OPEC+ members, with only Iraq and Nigeria noticeable under-compliers.

Robin Mills, chief executive of Qamar Energy, said: “That’s where I’d expect it to be after two months in such a fluid situation. It will be even better in June.”