Business conditions in the United Arab Emirates worsened for the first time in over a decade as the virus outbreak in China risks further disruption to the Gulf nation’s trade and tourism.
Hurt by employment losses and a drop in new orders, operating conditions in the second-biggest Arab economy deteriorated in January, according to IHS Markit. Its U.A.E. Purchasing Managers’ Index, a snapshot of the country’s non-oil private sector, dropped to 49.3, crossing the threshold of 50 that separates contraction from growth.
“Key to the decline were firms’ efforts to reduce employment at one of the fastest rates on record in order to streamline costs,” David Owen, economist at IHS Markit, told Bloomberg.
The federation of seven emirates, dominated by oil-rich Abu Dhabi and tourism and trade hub Dubai, is losing economic momentum in the face of challenges that range from geopolitical strains in the region to weak domestic demand. Authorities are counting on Dubai’s World Expo exhibition later this year to revive growth.
But the raging outbreak in China, the U.A.E.’s biggest trading partner, could become a major drag. With a rising death toll, thousands ill and much of China’s economy locked down, it’s already curbing travel and threatening global demand for oil. Gulf carriers Emirates and Etihad Airways were told this week to halt flights to all Chinese cities apart from Beijing.
“Dubai is the engine of non-oil sector growth in the United Arab Emirates,” Khatija Haque, head of Middle East and North Africa research at Emirates NBD, said in a Bloomberg TV interview.
The city relies heavily on transport, logistics and tourism — all of which have been harmed by the virus’s economic impact, “and will continue to be affected until the problem is fixed,” she said.