A survey revealed today, Thursday, that the UAE's non-oil private sector shrank last August for the first time since last May, affected by a record job cut, which eroded the growth achieved in the previous two months following the easing of general isolation measures to combat the Corona virus.
The IHS Market UAE Purchasing Managers' Index, which covers the manufacturing and services sectors, fell to 49.4 points in August compared to 50.8 in July, dropping from the 50-point level separating growth and contraction.
"Despite this, the two sub-indices for new products and orders indicate continued expansion in activity and demand during August," the report said.
"Companies announced a strong improvement in new business inflows, which were mainly driven by higher domestic spending, with export sales slowing for the second consecutive month," the report added.
The production sub-index fell to 50.5 points in August, from 53.7 points in July.
The UAE has relaxed most of the general isolation measures and resumed the operation of international flights, although it required presenting a test that proves freedom from the Corona virus before traveling from Dubai to the capital, Abu Dhabi.
Dispensations
The employment sub-index plummeted to 41.5 points in August from 47.5 points in the previous July, in a record low recorded by the survey that began 11 years ago.
David Owen, an economist at IHS Markit, said the sharp drop in the workforce was driven by companies laying off employees and "cutting employee costs".
"The job cuts allowed most companies to keep pace with the weak economic recovery after the lockdown, as demand growth failed to gain further momentum. But others emphasized that it was aimed at avoiding closure during a period of weak sales and strong competition."
Business confidence fell for the next year to its lowest level since the start of the survey, as multiple companies indicated that weak growth could lead to business closures.