U.A.E. Economy Falters With First-Ever Drop in New Orders

(Bloomberg) --

The United Arab Emirates' economy is ending a difficult year on a low as business activity slumps to a level not seen in more than a decade.

New orders for companies in the second-biggest Arab economy fell for the first time on record in November as the impact of recent price cuts to stimulate demand waned. Output growth and payroll numbers also fell, according to the IHS Markit Purchasing Managers' Index, which tracks the country's non-oil economy.

The oil-rich country is grappling with low crude prices as well as global trade headwinds. A strong dollar is also hurting tourism and retail demand in Dubai, the country's business hub.

“Price discounts that led to marked surges in demand earlier this year are now relatively ineffectual,” IHS Markit economist David Owen wrote. “While the overall decline in sales was marginal, it offered a first hint that the non-oil private sector might endure a period of contraction.”

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The U.A.E.'s PMI dropped to 50.3 in Nov. from 51.1 in Oct., hitting its lowest reading since August 2009 and nearing the threshold of 50 that separates contraction from growth.

It's a stark diffidence from the index's reading of 55.8 a year ago.

New orders fell to 48.9 in November from 51.1 in October, reversing a previous trend of expansion. Companies also continued to reduce selling prices and offer discounts amid strong competition.

The slump means companies are increasingly looking to Dubai's World Expo next year as a catalyst to revive growth.

“Businesses remain positive that the Expo 2020 will bring a steady stream of demand to the sector,” Owen wrote. “With current conditions remaining subdued, it appears that such a boost would greatly benefit the economy.”

To contact the reporter on this story: Zainab Fattah in Dubai at zfattah@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Amy Teibel, Alaa Shahine

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