Behind the Numbers, Supply-Chain Chaos Masks Extent of Gulf Pain

(Bloomberg) -- Supply disruptions that came with the global coronavirus pandemic are obscuring the distress among businesses in the two biggest Gulf Arab economies.

Longer delivery times, usually a sign of stronger demand, pushed up the latest readings of operating conditions in the non-oil private sector economies of Saudi Arabia and the United Arab Emirates, according to IHS Markit. Its Purchasing Managers' Index for Saudi Arabia actually improved slightly in April, while a similar gauge for the U.A.E. declined less than in March. Both remain below the threshold of 50 that separates growth from contraction.

But the signs of improvement could be deceptive. It was a supply shock that caused longer delivery times, as delays in shipping and shortages of products followed efforts to contain the virus, according to IHS Markit.

“Longer suppliers' delivery times are typically seen as an advance indicator of rising demand for raw materials and therefore have a positive influence on the PMI index,” IHS Markit said in its report on Saudi Arabia.

Other PMI components such as new work are probably a better reflection of business conditions at a time when suppliers' delivery times are distorting the overall snapshot, according to economists at Emirates NBD PJSC, Dubai's biggest bank.

Beyond the headline figures, PMI surveys provided a glimpse into economies still a long way from recovery.

New Records

Saudi Arabia had a survey-record drop in private-sector business activity, with the index at 37.5, IHS Markit said. New orders also fell at the fastest pace since the survey began in August 2009, with a similar setback for employment.

In the U.A.E, the overall PMI dropped for the sixth month running to a record low. IHS Markit said activity also fell the most ever and export business saw a drop “that was unprecedented in the survey history.” The rate of decline in new business extended “slightly” in April from its previous record set a month earlier.

Looking ahead, some optimism still prevails. The share of Saudi survey respondents anticipating an increase in business activity over the following year exceeded those forecasting a drop.

Expectations were mixed in the U.A.E., with business sentiment at the lowest in nearly three years. But companies “were still positive overall of an uplift in output,” IHS Markit said.