Pace of private business expansion in UAE steadies

In line with the recent trend, the UAE’s non-oil private sector expanded at a steady pace in June. Higher output and new orders were key factors behind the overall improvement in business conditions. That said, the respective rates of growth were subdued compared to those seen over the course of 2014 and 2015.

Both employment and purchasing activity rose only modestly. Meanwhile, cost pressures intensified to the most marked since September last year, but output prices continued to fall regardless.

The survey, sponsored by Emirates NBD and produced by Markit, contains data collected from a monthly survey of business conditions in the UAE non-oil private sector.

“The softening in new business and output growth in June may partly be due to the earlier start to Ramadan this year. Nevertheless, the output index remains relatively high and we continue to expect solid non-oil growth in the UAE this year,” said Khatija Haque, Head of Mena Research at Emirates NBD.

Key Findings

 *   Output growth eases from May’s eight-month high

 *   Rise in new business remains relatively subdued

 *   Marginal rate of hiring

The headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – slipped to 53.4 in June, from 54.0 in May.

While still pointing to growth of the non-oil private sector, the latest figure was much lower than the average over the past three years (56.3). The reading was nevertheless in line with the second quarter trend (53.4).

Output continued to rise sharply in June. Though easing from May’s eight-month high, the rate of expansion was marked overall. Stronger marketing and healthy demand were reported to have bolstered activity. However, in the context of data since the beginning of 2014, growth was relatively subdued.

The upturn in total new business was maintained in June, helped by a second successive expansion in exports. That said, the respective rates of growth were subdued compared to long-run trends.

Employment barely contributed to growth of the non-oil private sector as a whole. The rate of hiring was among the weakest recorded by the survey and marginal overall. This was in line with the near-stagnant trend seen over the second quarter. Backlogs of work meanwhile increased for the sixth month in a row, albeit modestly.

The relative weakness of order books was borne out by muted growth of purchasing activity in June. The pace of expansion had eased to a 56-month low in May, and it quickened only slightly in the latest period. Stocks of raw materials and semi-manufactured goods rose at a similarly modest rate. Those firms that raised inventory levels did so in expectation of future improvements in demand.

On the price front, total input costs faced by UAE non-oil private sector firms increased more quickly in June. Both salaries and purchase prices rose at a faster pace, leading the overall rate of inflation to reach a nine-month high.

However, the rise in input costs was insufficient to push charges higher. Output prices fell for the eighth month running, albeit fractionally. Some panellists indicated that they had offered discounts as part of promotional efforts, but most signalled no change since May.

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