UAE's non-oil sector expands at steady pace

The UAE non-oil private sector expanded at a steady pace in June fuelled by higher output and new orders, a new survey shows.
The Emirates NBD UAE Purchasing Managers' Index - 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), Emirates NBD said.
"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 bank said.
Khatija Haque, head of Mena research at Emirates NBD, said the softening in new business and output growth in June may partly be due to the earlier start to the holy month of 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 Haque.
The respective rates of growth, however, were subdued compared to those seen over the course of 2014 and 2015, the bank noted. 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 upturn in total new business was maintained in June, helped by a second successive expansion in exports. But 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 bank said.
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.
The bank said the rise in input costs was insufficient to push charges higher. Output prices fell for the eighth month running, albeit fractionally.
In Saudi Arabia, non-oil private sector maintained its growth at a steady rate in June, as highlighted by a further solid improvement in business conditions.
"Output and new orders both rose sharply, leading firms to raise their input buying at a marked pace. However, the respective rates of expansion remained subdued in the context of historical data. Weak job creation continued to undermine overall growth, as did falling exports. On the price front, input costs rose to the greatest extent in seven months, contributing in turn to a first increase in charges since October last year," Emirates NBD said.
"The non-oil sector in Saudi Arabia is expanding at a robust rate, despite low oil prices, government spending cuts and more recently, higher interbank lending rates. Firms appear to be increasing operating efficiency, as jobs growth remains sluggish even as activity and new orders are rising," said Haque.
- issacjohn@khaleejtimes.com