Friday 28 July 2017
 
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SPECIAL REPORT

UAE non-oil business improving, Saudi loses steam

DUBAI, 23 days ago

The UAE non-oil private sector witnessed a sharp improvement in its business conditions last month mainly driven by a spurt in both new orders and output following May's weakest improvement in six months. However, in neighbouring Saudi Arabia, the upturn in private sector lost steam in June, said the Emirates NBD Purchasing Managers’ Index (PMI) for the two regional heavyweights. 
 
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.
 
UAE performance
 
Following May’s weakest improvement in six months, the upward growth trajectory of the non-oil private sector gained steam in June. The latest improvement was supported by sharper rises in both new orders and output, stated the report. 
 
The ongoing upturns in output and new order book volumes encouraged companies to engage in input buying, leading to further increases in inventories. 
 
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 – rose from May’s six-month low of 54.3 to 55.8 in June. 
 
Remaining comfortably above the crucial 50 threshold, the latest reading signalled a sharp improvement in the health of the private sector. Notably, the rate of growth was stronger than the long-run series average (54.5).
 
The general improvement in operating conditions was closely linked to a sharper increase in output during June from May’s 13-month low. The combination of more projects, trends in new orders and favourable economic conditions was reported by panellists to have contributed to greater business activity.
 
Meanwhile, problems existed elsewhere as employment stagnated. New export orders fell for the first time in seven months as demand from international markets reduced. Business confidence towards the 12-month outlook eased to the second-lowest in the survey history, according to PMI for the emirates. 
 
Following a decline in the prior month, there was a renewed increase in input costs. In spite of increased cost pressures, firms continued to offer discounts amid reports of intense competition, it added.
 
Moreover, growth in new orders quickened from May’s five-month low to the fastest pace since August 2015. Firms linked the rise in new business to discounts and greater marketing efforts, said the UAE PMI survey.
 
In response to greater output requirements, companies raised purchasing activity at a sharp pace. As a result, inventories rose at a steep pace. Firms mentioned forecasts of greater new work as the key reason behind the latest rise in inventories.
 
The rate of job creation eased to an eight-month low to signal a broad stagnation in employment.
 
Output charges decreased in June as firms were unable to pass on higher cost burdens to customers amid reports of intense competition. Input prices rose following a decline in May, although the rate of inflation was only modest. Input costs were mainly driven higher by a general increase in market prices for raw materials, according to panellists.
 
Positive sentiment towards business prospects eased to the second-weakest in the survey history. Firms expect projects in the pipeline, and further improvements in economic conditions will lead to output growth in the year ahead, stated the report.
 
Commenting on the UAE PMI survey, Khatija Haque, the head of Middle East and North Africa (Mena) Research at Emirates NBD, said: "The rise in output and new orders in June is encouraging, although we note that firms continued to reduce selling prices on average in order to support demand and order growth."
 
"The survey also highlights the lack of employment growth despite strong the strong increase in new work last month.  Overall however, the PMI data for H1 2017 supports our view that the non-oil sectors have grown at a faster pace relative to H1 2016," she noted.
 
Saudi Arabia 
 
The improvement in the health of the Saudi Arabian non-oil private sector economy was sustained in June, but growth lost momentum. Both new orders and output increased at the weakest rates in eight months, while growth of buying levels softened to the weakest since data collection began, according to the Saudi PMI survey. 
 
Concurrently, there was a renewed increase in new export orders. On the price front, cost inflation was slightly above May’s survey-record low. Subsequently, average selling prices rose.
 
Commenting on the survey, Haque said the average PMI for the first half stood at 56, well above the neutral 50 level and signalling a faster rate of non-oil private sector growth than the previous year.
 
"However, faster non-oil GDP growth this year will likely be offset by contraction in the oil sector this year, following OPEC’s decision to extend output cuts through Q1 2018," she noted.  
 
The headline seasonally adjusted PMI fell from 55.3 in May to an eight-month low of 54.3 in June. This was consistent with a marked, but slower, improvement in business conditions. Moreover, the average performance of Q2 2017 (55.4) was weaker than in the opening quarter (56.7), stated Haque. 
 
According to her, the overall improvement in operating conditions was supported by a sharp increase in new business wins. 
 
Favourable economic conditions, strong underlying demand and more construction projects were reported by panellists to be the key factors behind the rise in inflows of new business. That said, growth eased to an eight-month low. 
 
A two-month sequence of contraction in new export orders was followed by a modest expansion during June. Panellists mentioned that good quality of products and services, as well as discounts, helped them secure new work from abroad, said the PMI report.
 
Amid reports of strong demand conditions, firms raised output further during June. Although the slowest in eight months, the rate of growth was sharp overall.
 
In response to greater output requirements, firms increased payroll numbers at the fastest pace since August 2016. However, the overall rate of job creation was only slight, it stated.
 
"In line with the trend for output, Saudi Arabian firms increased their purchasing activity again in June. Nonetheless, the rate of growth was the weakest observed since the inception of the survey in August 2009," remarked Haque. 
 
"Greater input buying contributed to higher input stocks. Although easing to the weakest in four months, the rate of accumulation was sharp overall and above the series trend," she added.
 
The rate of input price inflation picked up from May’s survey-low, but was modest overall. As a result, the sector saw a renewed rise in output charges, according to the Saudi PMI survey. 
 
The rate of charge inflation was marginal overall. Those firms that raised their average selling prices commented on the passing on of higher cost burdens to clients, stated the survy.
 
Firms remained optimistic towards the 12-month outlook for output, with panellists commenting on promotional activities and projections of further improvements in economic conditions. That said, confidence fell to an eight-month low, it added.-TradeArabia News Service
 
 
 



Tags: UAE | Saudi | business | non oil sector |

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