Growth of the non-oil private sector in the UAE and Saudi Arabia accelerated to eight- and six-month highs, respectively, during May, thanks mainly to a sharp expansion of output, according to the latest Emirates NBD PMI index.

UAE

Activity increased at the fastest pace in eight months during May, helped by a pick-up in new business growth. However, data pointed to areas of underlying fragility, as both employment and input buying rose only slightly. The expansion of the latter was the least marked since September 2011. Cost pressures intensified but remained historically subdued, while output prices fell for the seventh month running.

The survey, sponsored by Emirates NBD and produced by Markit, a leading global diversified provider of financial information services contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.

Khatija Haque, head of Mena Research at Emirates NBD, said: “The improvement in the UAE PMI was mainly due to strong growth in output last month, with new business picking up as well. This confirms our view that the non-oil sector of the UAE is continuing to expand, albeit at a slower rate than last year.”  

Key findings

•    Higher activity underpins faster improvement in business conditions
•    New order growth picks up, but input buying rises only modestly
•    Charges fall for seventh month in succession

Adjusted for seasonal influences, 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 – posted 54.0 in May, up from 52.8 in April. The latest figure was the second-highest in six months, albeit still below the long-run series average (54.5). It also signalled an acceleration in growth following a slowdown in the previous month.

The overall improvement in the health of the sector was driven by higher output in May. The rate of expansion was the quickest since last September, with panellists commenting on new work generated by marketing initiatives.

Data confirmed that new orders had risen solidly in May. Growth was faster than in April, but remained much slower than the survey average. Contributing to the relative weakness of total new work was a negligible rise in exports. Despite signalling an increase for the first time in three months, the respective index posted one of its lowest readings since the series began in 2009.

In spite of faster expansions in output and new business, growth of purchasing activity slowed in May. Moreover, the extent of the slowdown was substantial – the latest rise was the weakest in 56 months. Some panellists indicated that they had postponed input buying as their stock levels had been sufficient to cope with demand. Pre-production inventories increased modestly.

Employment remained an area of concern in May. While job creation resumed following a stagnation in April, the rate of hiring was marginal and among the weakest seen in nearly seven years of data collection. Incoming new projects therefore placed pressure on operating capacity, though backlogs rose only slightly.

On the price front, total input costs in the UAE’s non-oil private sector rose further in May. The overall rate of inflation picked up to a seven-month high. That said, cost pressures remained muted in the context of historical data.

Charges decreased for the seventh consecutive month. The rate of decline was in line with the trend over that sequence. As in previous months, discounts were widely attributed to greater competition.  

Saudi Arabia

 Both output and new orders rose sharply in May, with the rate of expansion in the latter picking up to a five-month high. Companies raised their input buying at a faster pace, in line with current growth and projections of future improvements in demand. However, employment increased only modestly. On the price front, cost pressures remained subdued, while charges fell for the seventh month in a row.  

“The rise in the Saudi PMI to the highest reading in six months is encouraging, as it shows the resilience of the non-oil economy even in the face of tighter fiscal policy. Domestic demand remains robust, even as export demand has softened,” said Haque.

Key findings

•    Fastest rise in total new work so far this year...
•    ...in spite of second successive fall in exports
•    Both output and purchasing activity increase sharply

The Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) climbed to a six-month high of 54.8 in May, from 54.2 in April. That was indicative of a robust improvement in the health of Saudi Arabia’s non-oil private sector. However, growth was still relatively muted as the latest figure remained closer to January’s record low (53.9) than the long-run series average (58.6).

A sharp expansion of new business was a key positive takeaway in the latest survey period. The rate of increase was the most marked since the turn of the year, with panellists commenting on new project start-ups and the introduction of new products. Data highlighted the strength of domestic demand in particular, as exports declined for the second month running.

Higher new work led to another rise in output during May. The pace of expansion was substantial, albeit the slowest in three months. There were reports that better marketing had also contributed to growth.

With new orders rising and anecdotal evidence pointing to expectations of future improvements in demand, purchasing activity increased at a faster pace. Stocks of inputs followed suit – the rate of inventory building accelerated to a five-month high.

Jobs growth remained modest, however. Though slightly quicker than in April, the rate of hiring was weak in the context of historical data. Meanwhile, backlogs of work increased marginally, continuing the trend recorded throughout 2016 so far.

Total cost pressures in Saudi Arabia’s non-oil private sector eased during May. In fact, the rate of inflation was the second-slowest recorded since the series began in August 2009. Data signalled relatively muted rises in both salaries and purchasing costs.

With input prices increasing only modestly, firms were able to reduce charges for the seventh straight month. The latest decline was the quickest since February, albeit moderate overall. A number of respondents indicated that they had lowered output prices in order to remain competitive.  – TradeArabia News Service