UAE private sector steps up in May
Business activity in the UAE increased at the fastest pace in eight months during May.
Dubai - Sharp rise in activity helps non-oil business gain momentum
Helped by a pick-up in new business growth, non-oil private sector activity in the UAE regained some momentum midway through the second quarter, Emirates NBD said.
Activity increased at the fastest pace in eight months during May, mainly due to a sharp expansion of output, according to a survey, sponsored by Emirates NBD and produced by Markit.
"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 bank said in its monthly survey of business conditions in the UAE non-oil private sector.
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 acceleration in growth following a slowdown in the previous month.
The forecast from the Central Bank of the UAE shows a resilient growth for the nation, driven by the non-oil activities which are expected to grow by 3.5 per cent in 2016, while oil GDP is expected to grow by 1.2 per cent. A recent a study by Visa showed that more than half of UAE professionals are optimistic about future employment opportunities and personal finances as they believe that the country's economic situation would improve in the coming 12 months.
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."
The survey reveals that higher activity underpinned faster improvement in business conditions.Although new order growth picked up, input buying rose only modestly.
"The overall improvement in the health of the non-oil 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," the bank said.
The survey 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."
The report noted that despite faster expansions in output and new business, growth of purchasing activity slowed in May. "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."
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," the bank said.