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RECORD JOBS CREATION

Exports return to growth following
a three-month downturn

UAE, Saudi non-oil growth jumps to new highs

DUBAI/RIYADH, August 3, 2016

Growth of UAE’s non-oil private sector accelerated to a 10-month high in July, while the expansion of the same picked up speed in Saudi Arabia during the month, marked by the strongest improvement in business conditions since last November, a report said.

UAE

 Sharp expansions of output and new work helped the sector to gather momentum, alongside quicker rises in purchasing activity and employment, according to the Emirates NBD Purchase Managers’ Index (PMI) from Emirates NBD and produced by IHS Markit, a global market research firm.

Notably, the rate of job creation was the fastest in over a year. Meanwhile, purchasing costs continued to increase solidly. The rate of inflation remained relatively subdued, however, and was insufficient to prevent another fall in charges. Competitive pressures outweighed higher costs when companies came to set their selling prices.  

The survey contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.

Commenting on the Emirates NBD UAE PMI, Jean-Paul Pigat, senior economist at Emirates NBD, said: “July’s survey suggests that the UAE’s non-oil private sector economy started off the second half of 2016 on a strong footing. It is encouraging that despite relatively weak exports, economic momentum is being supported by stronger domestic demand conditions.”  

Key findings

•    Sharper rise in activity contributed to highest PMI reading in 10 months
•    Growth of total new business accelerates despite lower exports
•    Strongest hiring since May 2015

At 55.3, the headline seasonally adjusted Emirates NBD UAE PMI was consistent with a robust improvement in business conditions in July. The index also signalled a rebound in growth, having slipped to 53.4 in June. Moreover, the latest reading was the highest in ten months and above the long-run series average (54.5).

Higher output was a key contributor to growth of the non-oil private sector as a whole. The rate of expansion was the most marked in nearly a year, supported in turn by a sharp rise in new work. Successful marketing strategies underpinned the improvement in demand, according to panellists.

Data signalled that growth of total new business was largely centred on the domestic market. New export orders fell for the first time in three months, and at a survey-record pace. There were reports of fragile economic conditions across international markets.

Purchasing activity was reflective of rising business requirements in July. The latest increase was the fastest in four months, with firms commenting on the start-up of new projects. The rate of inventory building also picked up. Some respondents suggested that stocks had been accumulated in anticipation of future sales.

Job creation was another by-product of new order growth in July. The pace of hiring quickened to a 14-month high, contrasting with the trend seen over the second quarter – when employment was either stagnant or barely rising.

A larger workforce failed to alleviate pressure on operating capacity, however. Backlogs of work rose for the seventh successive month, albeit only modestly.

On the price front, the rate of overall cost inflation was little-changed since June at the start of the third quarter. The increase was solid overall, mainly driven by higher purchase prices. That said, it was slightly weaker than the series average, and charges continued to fall regardless. Some panellists offered discounts in the face of greater competition, while others did so in an effort to attract new clients.  

Saudi Arabia

Output growth was particularly sharp, while new orders also increased at a faster pace. The improvement in demand was broad-based across domestic and international markets – exports rose for the first time in four months. Job creation and higher input stocks were among the other factors supporting overall growth. Meanwhile, the absence of strong cost pressures meant that output prices were broadly stable, having risen marginally one month previously.  

Commenting on the Emirates NBD Saudi Arabia PMI, Pigat said: “July’s survey is encouraging as it suggests Saudi Arabia’s non-oil economy continues to expand at a healthy clip. Growth momentum is slower than last year, but is holding up better than many had expected in an environment of low oil prices.”

Key findings

•    Faster rises in output and new work help sector to gain momentum
•    Exports return to growth following three-month downturn
•    Job creation quickest since last October

Rising from 54.4 in June to 56.0, the headline Emirates NBD Saudi Arabia PMI posted the highest reading in eight months during July. That signalled a notable acceleration in growth, particularly in the context of the trend over the past year (55.3). That said, the rate of improvement in business conditions remained below the long-run series average (58.5).

Underpinning growth of the non-oil private sector as a whole was a sharp rise in output at the start of the third quarter. The rate of expansion was the quickest since September 2015. Panellists attributed higher activity to incoming new work resulting from marketing initiatives.

Reports of improving demand were supported by survey data, which showed new business rising to the greatest extent in eight months during July. Firms suggested that promotional efforts and high quality goods and services had contributed to stronger demand. Moreover, growth of total new work was supported by an increase in exports for the first time in four months. That marked a resumption of the trend seen throughout the survey’s history up until April.

Solid growth of output and new business convinced companies to hire additional staff in July. The rate of job creation was the fastest since last October, albeit moderate overall.

Purchasing activity also increased more quickly. According to respondents, input buying was raised in order to accommodate new projects. Stocks of pre-production items rose as a result, with the rate of inventory building accelerating to a ten-month high.

Meanwhile, backlogs of work fell for the second straight month. Panel members indicated that efficient production had enabled them to complete orders on time.

On the price front, the rate of input cost inflation was little-changed since June and muted relative to the series average. The lack of cost pressures fed through to charges, which were broadly unchanged. Some firms offered discounts in the face of greater competition.  – TradeArabia News Service




Tags: Saudi Arabia | UAE | Private sector | non-oil |

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