Friday 29 March 2024
 
»
 
»
Story

Haque ... cooling in new orders and jobs creation.

UAE, Saudi non-oil business growth slows

DUBAI/RIYADH, January 7, 2016

The UAE’s non-oil private sector business activity improved at the slowest rate in 40 months during December 2015, while the same in Saudi Arabia improved at the weakest pace since 2009, a report said.

The survey titled Emirates NBD UAE PMI, sponsored by Emirates NBD and produced by Markit, contains original data collected from a monthly survey of business conditions in the private sector.
UAE

The survey showed that a key factor weighing on the sector as a whole was relatively muted growth of new work – the pace of expansion was the weakest since August 2011.

Data Output, employment and input buying also rose more slowly, while charges decreased as firms competed to secure new clients, said the report, which contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.

Data Output, employment and input buying also rose more slowly, while charges decreased as firms competed to secure new clients, said the report.

Khatija Haque, head of Mena Research at Emirates NBD, said: “The PMI data point to weaker domestic and external demand in Q4 (fourth quarter) 2015 which is reflected in lower readings for new orders, employment, output and the backlogs of work.”

“Indeed for 2015 as a whole, the average PMI was lower than for 2014, signalling slower – but positive – growth in the non-oil private sector.  However, softer non-oil growth in the UAE last year is likely to have been partially offset by robust oil sector expansion, and we remain comfortable with our estimate of 4.0 per cent real GDP growth in 2015 down from 4.6 per cent in 2014,” she added.

Key findings

PMI sinks to 40-month low
Loss of momentum driven by slower rises in output, new work and employment
Competition for clients leads to further drop in charges

After adjusting for seasonality, 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 – pointed to a loss of growth momentum in December.

Falling from 54.5 in November to 53.3, the latest reading was the lowest since August 2012. Despite still signalling a solid improvement in business conditions, it meant that the fourth quarter was the weakest on average (53.9) since Q3 2012.

Underpinning the overall slowdown was a subdued expansion in new orders placed with UAE non-oil private sector companies. The latest rise was the least marked in nearly four-and-a-half years, albeit robust overall.

New business from abroad followed a similar trend, with growth softening but remaining solid. Some panellists linked higher new work to improving market conditions both domestically and abroad, while others made reference to gains generated from marketing efforts.

Growth of new work was sufficient to motivate firms to raise their output further in December. The rate of expansion moderated in line with the headline index, though it remained slightly faster than the long-run average.

Another factor behind the overall easing was slower job creation at the end of 2015. Employment rose only modestly, as signalled by the respective index dropping below the 2015 average. Meanwhile, the level of unfinished work was unchanged in December, following a 19-month period of expansion. Data suggested that the absence of capacity pressures was at least partly due to the relative weakness of order books.

Input buying continued to rise in December, stretching the current upward trend to 65 months. The rate of growth eased, however, to the weakest since April 2013. Subsequently, stocks of purchases expanded at a slower pace.

On the price front, cost pressures remained modest in December.  Both salaries and purchasing costs rose more slowly, thereby restricting the overall rate of input price inflation.

Data for charges pointed to something of a squeeze on UAE non-oil private sector businesses. Tariffs fell for the second month running, with some panellists commenting on the need to offer discounts in order to capture new business.  

Saudi Arabia

Weighing on the sector were slower expansions in output, new orders and employment. Staffing levels, in particular, barely rose in December. Growth rates for activity and new work remained sharp overall.

Meanwhile, data for prices highlighted the impact of increased competition on both input costs and output charges. Cost pressures were the least marked since the survey began in 2009, while tariffs fell for the second month running.

“The latest PMI data show that although growth momentum has slowed in Q4 2015, the non-oil private sector still expanded at a solid rate at the end of last year.  This is consistent with the official estimate for non-oil private sector growth of 3.7 per cent, which was released with the 2016 budget at the end of December,” said Haque.

Key Findings

PMI slips to survey-record low in December
Rates of growth in output, new business and employment all ease
Charges fall back-to-back for first time since 2013

Despite falling from 56.3 in November to 54.4, the headline Emirates NBD Saudi Arabia Purchasing Managers’ Index remained indicative of solid growth in December. However, the latest reading was a series low, and meant that the average for Q4 2015 was also the weakest on record (55.4).

The cooling in the overall rate of expansion was reflected by softer output growth in December. The latest rise was the slowest since January, although it remained steep overall. Anecdotal evidence linked higher activity to new projects secured as a result of better marketing.

New business showed a similar trend in December, with growth still marked but easing to the weakest in the series history. The intensity of competition was reportedly a factor restricting new order growth at some firms, though panellists indicated that this was far outweighed by the gains from promotional activities. New export work continued to rise solidly, with some firms benefitting in international markets due to their reputations for quality.

Relatively slow growth of new work led companies to raise their purchasing activity at the weakest pace in more than two years. That said, the rate of expansion was still sharp overall, and sufficient to contribute to a further build-up of input stocks in December.

On the jobs front, the rate of hiring eased to near-stagnation at the end of the fourth quarter. It was the weakest in the current 21-month period of expansion, with the vast majority of respondents (97 per cent) seeing no change in employment.

Total input costs faced by Saudi Arabia’s non-oil private sector firms increased further in December. The rate of inflation slowed to a record low, however, and was only modest overall. For the first time in over a year, purchasing costs rose at a weaker pace than salaries, as panellists pointed to greater price competition among suppliers.

Competitive pressures were also behind firms’ decisions to cut charges for the second straight month – the first back-to-back decline since 2013. – TradeArabia News Service




Tags: Saudi Arabia | UAE | Emirates NBD | Private sector | non-oil | PMI | Purchasing Managers Index |

More Finance & Capital Market Stories

calendarCalendar of Events

Ads