End of inflation in UAE? Business costs decline for first time in 5 years

Dubai Statistics Centre monthly consumer price data last week showed March inflation falling to 4 per cent due to a fall in food prices. (REUTERS)

Business activity in the UAE’s non-oil private sector continues to grow but at a slower pace.

“Firms operating in the UAE’s non-oil private sector registered further strong improvements in output and new orders in March,” said Philip Leake, Economist at Markit, a financial information services provider that compiles the HSBC UAE Purchasing Managers’ Index (PMI).

According to the latest PMI, business activity grew in March at the slowest pace in 17 months on the back of slower output growth and new orders.

“March data pointed to a further slowdown in the UAE’s non-oil private sector, with operating conditions improving at the weakest rate since October 2013,” the PMI report stated.

“The rates of expansion eased for the second month running and were below those seen through much of last year,” noted Leake.

However, a silver lining was that, owing to an increase in competition, business costs fell for the first time in five years, making business operations that much more profitable.

“On the price front, competition among suppliers led to the first monthly fall in input costs since March 2010,” the report maintains.

“Data for prices provided a more optimistic note, as input costs and output charges fell simultaneously for the first time in five years,” said Leake.

Although marginal, the latest decline was only the third seen since the survey began in August 2009. Underlying data highlighted a similar fall in purchase prices, while average staff costs rose only fractionally during the month.

The report states that “anecdotal evidence linked downward pressure on purchase costs to greater competition among suppliers.”

The slow growth in business activity however, led to slow job-creation rate, meaning there were fewer new jobs added to the UAE market last month than in any of the previous 36 month.

However, the rate of hiring saw a marked pick up in February, rising to a four-month high in that month, making the increase in March seem only moderate. Backlogs of work also rose more slowly during the month, Markit data showed.

“Output and new orders expanded more slowly, although the rates of growth remained marked overall. As a result, the pace of job creation moderated to a three-year low,” the report added.

The seasonally adjusted HSBC UAE PMI – a composite indicator designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – dipped to a 17-month low of 56.3 in March, down from 58.1 in February.

The latest reading marked a second consecutive slowdown in growth of the UAE’s non-oil private sector, although remained consistent with a robust improvement in business conditions, the report maintains.

Nevertheless, the report also points out that, “contrasting with the trend observed for total new work, new export business increased at a faster pace in March. Stronger demand in neighbouring countries was reported to have boosted foreign orders during the latest period.”

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