UAE non-oil private sector activity growth eases in June

Non-oil private sector business activity growth in the UAE slowed to almost a two-year low in June on the back of slower output expansion and weaker growth in new orders, according to a survey released on Sunday.

The seasonally-adjusted Emirates NBD UAE Purchasing Managers' Index, which covers manufacturing and services, fell to 22-month low of 54.7 points in June from 56.4 in May. The 50-point level separates growth from contraction in the survey of 400 firms.

"Marked slowdowns in growth of output and new business were at the forefront of the overall deceleration, while employment continued to rise at a solid pace,” the survey report said.

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.

Khatija Haque, head of Mena research at Emirates NBD, said although the June PMI data was the softest in two years, it signals solid growth in the non-oil private sector.

"Furthermore, it is difficult to determine whether the softening will continue into third quarter, particularly when bearing in mind the Islamic calendar. We attribute some of the slowdown in the June data to the start of the holy month of Ramadan, and we would expect to get a clearer picture of underlying growth momentum later in the year.”

Frost & Sullivan has predicted in a study that in the second half of 2015, the UAE economy is projected to grow by 4.5 per cent to record an annual growth of 4.4 per cent in 2015.

"Robust non-oil activities, greater public sector spending and huge foreign reserves will propel the UAE's economic growth by 4.4 per cent to US$440.18 billion in 2015 from US$416.44 billion in 2014,” it said.

"Diversification of the UAE economy has made it less vulnerable to oil price fluctuations, and heightened non-oil private sector performance will be the key factor that drives economic growth,” said Krishanu Banerjee, senior research analyst at Frost & Sullivan.

According to the key findings of the Emirates NBD-Markit survey, output rose further in June, but the rate of expansion eased sharply while new orders increased at slowest pace since April 2012. In June, cost pressures eased for a second month running.

The data indicated that the overall slowdown was mirrored by weaker expansions in output and new orders during June. Activity growth eased to a 20-month low, while new work inflows rose at the slowest pace since April 2012. However, the respective rates of increase remained marked overall.

Improved marketing strategies, new client wins and new product launches all helped to boost demand conditions, which in turn led to another expansion in output, according to panellists.

"A weaker rise in new export work contributed to slower growth of total new business in June. The latest increase was the weakest since the end of 2013, but remained broadly in line with the average recorded over nearly six years of data collection. Similarly, UAE non-oil private sector firms raised their input buying more slowly in the latest period,” it said.

"Although solid overall, the rate of expansion was the least marked in nearly two year,” it added.

While pre-production inventories rose only modestly, the rate of job creation was little-changed from the solid pace seen in the previous two months during June.

"Those companies that hired additional staff commented on the opening of new branches and efforts to expand operating capacity. Total input costs faced by UAE non-oil private sector businesses increased for the third straight month in June, albeit only fractionally. The rate of inflation was muted relative to the long-run trend, helped by slower rises in both purchase prices and staff costs in the latest period,” said the report.