UAE’s non-oil private sector growth gathered speed in February, having slowed in four of the previous five months, a report said, adding that the same picked up during the month in Saudi Arabia, following the weakest improvement in business conditions on record seen in the first month of 2016.

UAE

The overall improvement in business conditions was helped by expansions in output, new orders and employment. All three variables rose slightly faster than in January, but the respective indexes remained below long-run trends. Meanwhile, with total cost pressures remaining muted, firms cut charges to the greatest extent since March 2010 as they competed to secure new clients.  

The survey, sponsored by Emirates NBD and produced by 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 improvement in the Emirates NBD UAE PMI last month is encouraging, particularly against a backdrop of low oil prices, global growth concerns and a strong USD.  However, the rate of growth in the non-oil private sector remains much weaker than a year ago, when the headline PMI registered 58.1.  We expect the environment over the coming weeks to remain challenging, with several global factors weighing on sentiment and activity.”

Key findings

•    Slowdown ends as PMI rises from near-four year low

•    Rates of growth in output and new orders pick up slightly

•    Tariffs drop at fastest pace in almost six years

The headline 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 – climbed to 53.1 in February, from 52.7 in January. With the previous reading being the lowest since March 2012, the latest figure was still below the series average (54.5). Nonetheless, it bucked the recent trend of slowing growth, and was consistent with a solid improvement in business conditions overall.

Both output and new orders rose more quickly in February, contributing to faster growth of the sector as a whole. The respective rates of expansion were marked but slower than on average over the survey’s history, having picked up only fractionally since the prior month. Higher new work was partly a result of lower tariffs, according to panellists. Meanwhile, data indicated that a rebound in growth of new export business had supported total new orders at UAE non-oil private sector firms.

Faster job creation was another factor behind the rise in the headline index during February. Employment rose at the quickest pace in three months, albeit only moderately overall. Anecdotal evidence linked hiring to rising workloads. The increase in new work was also sufficient to lead to further growth of outstanding business. Backlogs were accumulated for the second month running, following no change in December.

With regard to purchasing, the rate of expansion in input buying was broadly the same as in January, while the accumulation of pre-production inventories was unchanged. The start-up of new projects was reportedly behind higher purchasing activity, while stocks were raised at companies that expected future improvements in demand.

Finally, prices data signalled lower charges amid slowly rising input costs. Overall cost pressures were muted relative to the series average, with salaries and purchase prices both increasing only modestly. In the case of purchasing costs, there were reports that strong competition among suppliers had restricted inflationary pressure. Subsequently, output prices in the UAE’s non-oil private sector dropped for the fourth straight month. Furthermore, the rate of decline was the sharpest in nearly six years. A number of firms opted to give discounts in an effort to attract new clients.

Saudi Arabia

Rates of expansion in output, new orders and employment all accelerated, leading to sharper rises in purchasing activity and input stocks. That said, growth rates were still subdued relative to their respective long-run averages.

On the price front, total input costs rose only modestly. As a result, companies were able to lower their tariffs at the fastest pace in the series history amid greater competition.  


“The improvement in non-oil sector expansion in February is encouraging, particularly as external demand appears to have picked up after a particularly weak start to the year.  Price discounting has also likely contributed to order growth last month.  Overall, the data suggest that the non-oil economy in Saudi Arabia is growing despite low oil prices, albeit at a slower rate,” said Haque.

Key findings

•    PMI picks up slightly from January’s record low

•    Marked expansions in output and new work

•    Charges fall at fastest pace in series history

After adjusting for seasonality, the headline Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) posted 54.4 in February, up from January’s survey-record low of 53.9. Though signalling a rebound in growth, the latest figure was well below the long-run series average (58.8). Nevertheless, it pointed to a solid improvement in business conditions overall.

Growth of the non-oil private sector as a whole was supported by further expansions in output and new work during February. Both increased more quickly than in January, with panellists commenting on a general improvement in client demand stemming from better marketing and discounted prices. That said, the rates of growth remained weaker than their respective trends.

Unlike in January, the rise in total new business was reinforced by a robust expansion in new export work during February. Export growth had eased to near-stagnation at the start of 2016, but the respective index picked up substantially as stronger commercial strategies in foreign markets came to fruition.

With new orders rising at a faster pace, growth of purchasing activity picked up in February. The latest expansion was robust overall, albeit slower than those seen throughout 2015. Pre-production inventories also rose, with the rate of increase quickening from January’s 49-month low.

A larger workforce was another factor behind growth at Saudi Arabia’s non-oil private sector firms. Though modest, the pace of job creation was the most marked in four months. Meanwhile, backlogs of work rose only marginally in February.

The rate of input price inflation remained subdued in the context of historical data during February. Both salaries and purchasing costs increased modestly, with the rise in the latter restricted by competitive pressures among suppliers.

Subsequently, firms were able to cut their charges for the fourth successive month. With cost pressures muted and competition for clients still fierce, selling prices fell at the sharpest rate in the series history.  – TradeArabia News Service