UAE non-oil business output grows at subdued pace

Non-oil business growth in the UAE slipped to a new record low in October, with a decline in foreign sales adding to the difficulties of businesses at the start of the fourth quarter, according to the latest IHS Markit survey.
The headline IHS Markit UAE Purchasing Managers' Index was unchanged at 51.1 in October, remaining at its lowest level since May 2010.
"Output levels grew at a relatively subdued pace, with businesses also restraining purchasing activity. To restore sales, output charges were reduced again, and at the fastest rate in the series history, despite a second consecutive rise in cost burdens," said the survey report.
David Owen, Economist at IHS Markit, said that companies continued to ease back from the recent growth momentum earlier this year, with activity levels rising at the weakest rate since 2012.
"The amount of new work also remained subdued, as competition meant that sales increased only marginally from September. Cash issues were again a factor hampering firms in October," said Owen.
Some panellists noted that a lack of liquidity stalled the delivery of sold products, leading to higher backlogs, while delayed payments to suppliers disrupted supply chains.
"However, the most problematic indication from the survey was that further reductions in output charges are failing to boost sales. Firms have responded with an even larger price drop, the sharpest on record, but it seems that demand weakness is lingering in the private sector," said Owen.
The rate at which sales rose was fractionally slower than in September, as firms reported softening demand after relatively strong growth rates earlier this year, said the report. "Market competition continued to dampen new business both at home and abroad, according to panel members, with sales to foreign clients falling for the first time in 19 months."
While some UAE firms raised payroll numbers amid efforts to adapt business strategies in a weaker sales environment, others reduced their labour in order to cut costs. "Activity levels rose at a relatively weak rate in the latest survey period, amid slowing demand conditions. This translated into PMI stays at 51.1, joint-lowest since May 2010."
Meanwhile, Saudi Arabia's non-oil private sector entered the final quarter of the year on a stronger footing, with business conditions improving at the fastest pace since August 2015.
HIS Markit survey said output and new order growth quickened in October, with the latter rising at the sharpest rate since June. "On the price front, average selling prices declined for the second time in the past five months, as firms sought to stimulate additional customer orders."
The headline IHS Markit Saudi Arabia Purchasing Managers' Index rose to 57.8 in October from 57.3 in September. The index was the highest since August 2015 and signalled a sustained improvement in growth momentum.
"The upturn in business conditions seen in October was led by a steep and accelerated increase in new business - the sharpest seen since June. Export sales also rose, though at a slower pace, indicating that the main impetus continued to come from the domestic market," said the report.
Amritpal Virdee, economist at IHS Markit, said that growth momentum continued to build during October, with the headline PMI posting its highest figure since August 2015. "Output and new orders expanded at faster rates, mostly driven by domestic sales. There were also signs of export conditions becoming more supportive, with panellists stating that they had seen an overall improvement in foreign demand conditions," said Virdee.
- issacjohn@khaleejtimes.com