Wednesday, June 19, 2019 10:50 AM

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UAE non-oil private sector growth slows to four-month low

The end of 2018 saw a moderation in growth across the UAE’s non-oil private sector, with slower increases in output and new orders recorded. 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 – posted 54.0 in December, down from 55.8 in November and signalling the weakest improvement in business conditions since October 2016.


The drop in the headline figure reflected smaller contributions from all five constituent indices, suggesting a broad slowing of growth across the non-oil private sector at the end of 2018.


Daniel Richards, MENA Economist at Emirates NBD, said: “The Emirates NBD Purchasing Managers’ Index (PMI) for the UAE dipped from 55.8 in November to 54.0 in December. This marked the slowest pace of expansion in the non-oil private sector since October 2016, and has weighed on the 2018 average, which finished the year at 55.5, from 56.1 in 2017. Output fell from 60.1 to 58.8 and new orders from 61.0 to 58.3. Although the PMI remains in expansionary territory (50.0 is the neutral level which delineates contraction and expansion), the subcomponents of the survey suggest that this is continuing to come at a cost to businesses’ margins, albeit to a lesser degree than seen in November. 


Output prices did not fall as quickly in December as in the previous month – which was the fastest pace recorded since the 2009 recession – but they remained sub-50. Domestic competition led to sales promotions, according to firms surveyed, and a slower pace of growth in new export orders suggests that most of the growth in new orders was domestically driven.


The fall in output prices was mitigated somewhat by a slower pace of growth in purchase costs which expanded at the slowest pace since August. Nevertheless, the squeeze on margins is apparently still taking its toll on head count and pay; both employment and staff costs were broadly flat compared to a month earlierOnly 1.4 percent of firms took on new staff while all respondents reported their staffing costs unchanged, maintaining a trend recorded throughout H2 2018.  


Despite the squeeze on firms and dip in the headline reading, a sizeable majority of respondents (65.4%) retain the view that output will be higher in 12 months’ time, while only 5.2 percent expected conditions to deteriorate. However, some firms cited expectations of successful sales drives to help boost output, suggesting that price discounting will remain necessary to boost output in 2019.”


The latest expansion of business activity was solid overall as new orders increased again, but slower than that seen in November. New orders rose at the weakest pace since August. The offering of discounts in a competitive marketplace reportedly contributed to rises in both activity and new business.


Selling prices were reduced for the third successive month, albeit modestly. Companies were helped in the offering of discounts to customers by relatively weak input cost inflation. Overall input prices rose only marginally in December, with both purchase and staff costs broadly following the overall trend.


Efforts to control costs discouraged firms from hiring additional workers at the end of 2018, despite increasing new business. Employment was broadly unchanged, following a marginal rise in November.


Firms in the UAE’s non-oil private sector continued to expand their purchasing activity in response to growth of new orders and higher output requirements. Data suggested that purchased items were only used to support higher output, rather than also to build stock holdings. Inventories of inputs decreased for the first time in four months, with some firms linking this to efforts to manage cash flow more efficiently.


Companies generally remained optimistic that business activity will continue to increase over the course of 2019. Optimism was based on expectations of improving economic conditions and success in securing additional sales over the next 12 months.