The UAE's decade-long private sector business expansion came to a shocking end in January due to the sudden outbreak of the coronavirus in China's Wuhan. The pandemic threatens to further worsen non-oil-related trade as well as tourism since China is the biggest trading partner of the Gulf.

Between the sudden drop in employment rates, the loss of Chinese shoppers, and the lack of trade between the two countries has resulted in a significant decrease in the emirates' Purchasing Managers' Index (PMI). The PMI is an economic indicator calculated through monthly private company sector surveys.

"Chinese shoppers make up 40 percent of the global market for luxury goods, both bought within their country and during their travel outside," a senior official with one of Dubai's leading luxury groups said, according to Gulf News. "Even if only 5 percent of that spending happens at UAE stores, that's still a significant amount," the senior official added.

According to the leading source of information and insight in critical business landscape areas IHS Markit, UAE's non-oil private sector's PMI dropped from 50.2 in December 2019 to 49.3 in January 2020. Fifty is the threshold between expansion and contraction.

Source: Bloomberg

A decrease in the country's growth hit an all-time low in December; things went worse in January when the private sector actually began dwindling. For the second time in three months, total orders dropped in January, causing company sales to halt progression.

In an effort to combat this predicament, companies reduced employment "at one of the fastest rates on record in order to streamline costs." This alone substantially lowered the number on the employment sub-index from 50.3 in December to 48.8 in January.

With Dubai being the engine of non-oil sector growth in the UAE, authorities are counting on Dubai's Expo 2020 to pull them out of the economic hole the country has been dug into. 

"Looking ahead, it is hoped by many firms that the upcoming Expo 2020 will restore new business volumes and kick-start activity," David Owen, economist at IHS Markit and author of the report, said.

Dubai and Abu Dhabi have increased their spending in an effort to spur the economies. On a more positive note, according to predictions made by the International Monetary Fund (IMF), economic growth in the UAE should begin rising from 1.6 percent in 2019 to 2.5 percent in 2020.