UAE non-oil private sector growth eases in September

dubai - The slowdown is reflective of a subdued expansion in new work, modest job growth

The UAE's non-oil private sector growth eased in September with business conditions improving at the weakest pace since June, an Emirates NBD survey shows.

The survey, sponsored by Emirates NBD and produced by IHS Markit, said the slowdown was reflective of a subdued expansion in new work - the latest rise was the least marked in over six years. Job creation was also modest.

Despite the slowdown in growth of total new work, purchasing activity rose more quickly in September.

"That said, both output and purchasing rose sharply, suggesting that firms remain confident about the near-term outlook. On the price front, competitive pressures led to lower purchase costs and output charges. The fall in the former ended a 17-month period of inflation," the bank said.

Khatija Haque, head of Mena research at Emirates NBD, said the sharp slowdown in new order growth in September appears to be due to weaker demand from external markets rather than soft domestic demand. Growth in output and purchasing activity remained strong. Overall, the PMI data points to a faster rate of expansion in the UAE's non-oil private sector in the third quarter of 2016 compared to the second quarter.

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 - slipped closer to the 50.0 no-change mark for the second month running in September. Down from 54.7 in August, the latest reading of 54.1 was still consistent with a solid improvement in business conditions. It was also broadly in line with the average so far this year (53.8), albeit noticeably lower than 2014 (58.1) and 2015 (56.0) trends.

Higher output remained a key driver of growth of the sector as a whole during September. The rate of expansion was marked and only slightly slower than seen in the previous two months. Activity was reportedly bolstered by new projects and new client wins.

The report said while output continued to rise sharply, growth of new business eased substantially. In fact, the latest increase was the slowest since June 2010. There were some reports of weaker market conditions, although these were outweighed by mentions of improving demand. Data highlighted new export work as an area of concern. The amount of new business from abroad fell for the third straight month, and at a survey-record pace.

Panellists indicated that higher input buying was to cater for both new and ongoing projects. Subsequently, stocks of purchases also increased sharply. In fact, the rate of inventory building was at a record high.

"Hiring was comparatively modest at the end of the third quarter, continuing the trend seen throughout much of 2016 to date. A lack of meaningful workforce growth was partly behind another rise in work outstanding. The rate of accumulation accelerated, with some firms blaming the time-consuming nature of ongoing projects," said the report.

Meanwhile, total input costs decreased for the first time in a year-and-a-half thanks to only the third decline in purchase prices since the series began in August 2009. Charges also dropped, extending the current downward sequence to 11 months.

- issacjohn@khaleejtimes.com