UAE’s non-oil sector maintains solid growth in August

The strong performance of the UAE’s non-oil private sector recorded at the start of the third quarter was largely maintained in August. Business conditions improved solidly, supported by sharp rises in output and new work. The respective rates of expansion held broadly steady following July’s recent highs. The health of the sector was reflected by further growth of employment and purchasing activity, with the latter picking up to a nine-month high. Meanwhile, charges continued to fall, but only slightly as the impact of higher input costs nearly matched that of competitive pressures.

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

Commenting on the Emirates NBD UAE PMITM, Khatija Haque, Head of MENA Research at Emirates NBD, said.

“The slight decline in the August PMI reading is not unexpected given the strong July number.  Output and employment appeared to be the main reasons for the slower rate of expansion last month, coming off the highs posted in July.  However, output continues to expand at a relatively fast pace and new order growth is also robust.  The PMI data is consistent with our view of slower but solid economic growth in the UAE in 2016.”

Key Findings

–  PMI signals robust improvement in business conditions

–  Marked expansions of output and new orders

–  Input buying rises at fastest rate since November 2015

After having risen to a ten-month high of 55.3 in July, 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 – signalled another month of solid growth in August. At 54.7, the index was down fractionally but still above the overall series average (54.5). Notably, the latest improvement in business conditions was stronger than those seen during the first half of the year.

Underpinning growth of the non-oil private sector as a whole were sharp expansions of output and new work. Rates of increase eased since July, but remained faster than respective trends so far in 2016. As well as raising output to help with ongoing projects, panellists were buoyed by successful marketing and a general improvement in client demand.

The rise in total new work was centred on the domestic market, latest data showed. New export business fell for the second month in a row, and the fourth time since March. That said, the rate of decline was only modest.

Job creation was meanwhile recorded for the fourth successive month in August. The rate of hiring was only slight, however, having slowed from July’s recent high. It was also insufficient to prevent a build up of backlogs of work, particularly with new orders rising at a marked pace.

Reflective of new business gains and higher output requirements, purchasing activity increased in August. Moreover, the rate of expansion quickened to a nine-month high. This contributed in turn to a rise in stocks of inputs. Firms also commented on raising stocks in anticipation of future improvements in demand.

Finally, August data pointed to mounting cost pressures in the UAE’s non-oil private sector. Both salaries and purchasing costs rose to the greatest extent in 22 months. Higher costs were barely felt by clients, however. The intensity of competition ensured that the impact of rising input prices was limited, as charges fell for the tenth straight month. That said, the pace of reduction was the slowest in the aforementioned period and only marginal overall.