UAE’s non-oil private sector lost further growth momentum in October, with business conditions improving the least in six months, while the same in Saudi Arabia slowed considerably and jobs growth neared stagnation, a report said.

UAE

A relatively subdued rise in new work was a key factor behind the overall slowdown, as was a near-stagnation in employment. Output continued to rise sharply regardless, although the rate of expansion slowed marginally to a four-month low.

Meanwhile, a combination of subdued demand and ongoing competitive pressures led firms to cut their charges for the twelfth straight month. Purchase costs increased following September’s decline, albeit only modestly.  

The survey, sponsored by Emirates NBD and produced by IHS 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 headline PMI index declined in October, output growth remains very strong.  However export orders declined for the fourth consecutive month, contributing to a slowdown in total new orders growth since the summer.  Overall, growth momentum appears to have eased at the start of Q4 after a relatively strong Q3, but the data still points to solid expansion in the UAE’s non-oil private sector in October.”  

Key findings

•    PMI drops to six-month low
•    Output growth remains sharp but new business rises at relatively weak pace
•    Staffing levels near stagnation

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 – dropped for the third month in a row during October. The latest reading of 53.3 was the lowest since April, down from 54.1 in September. It was also below the long-run series average (54.5), although remained consistent with a solid improvement in business conditions.

Higher output was again the most prominent driver of growth of the non-oil private sector as a whole. The latest expansion was sharp, albeit slightly weaker than those seen throughout the third quarter. Panellists commented on stronger sales resulting from effective marketing strategies.

However, growth of new business was substantially slower than that for output in October. In fact, the rate of increase was little-changed from September’s 75-month low. Data showed that falling exports was a factor behind relatively subdued demand, while anecdotal evidence pointed to slower market conditions.

With client demand remaining muted, purchasing activity rose at a weaker pace. The rate of growth eased considerably from September’s recent peak to a four-month low. Pre-production inventories showed a similar trend, with the respective index falling since the prior month. Nonetheless, in both cases, the expansion remained solid amid forecasts of stronger sales growth.

Part of the sector’s overall slowdown was linked to a near-stagnation of staffing levels during October. The latest rise in employment was negligible, with nearly the entire survey panel (98%) seeing no change compared to September.

A combination of slower jobs growth and rising order book volumes led to a further accumulation of outstanding business. That said, the rate of expansion eased since the previous month.

On the price front, October data signalled a renewed rise in purchasing costs. The rate of inflation was only modest, however. In the absence of substantial cost pressures, and faced with greater competition, companies lowered their charges for the twelfth consecutive month.  

Saudi Arabia

The rate of expansion in purchasing activity held up slightly better, as firms acted on forecasts of stronger sales growth. Those projections may have been linked to an expected upturn in demand following price discounting. Charges fell for the second successive month amid muted cost pressures.  

Commenting on the Emirates NBD Saudi Arabia PMI, Haque said: “The decline in the Purchasing Managers’ Index in October was not unexpected, given the additional fiscal measures that came into effect last month including public sector wage cuts. External demand also softened further last month.  However, the PMI reading remains well above the neutral 50.0 level, indicating growth in the non-oil sector, albeit at a slower rate than last year.”

Key findings

•    Slowdown continues as PMI falls for second straight month to record low
•    Output and new orders rise at weakest rates in series history
•    Charges fall as firms seek to stimulate demand

The Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) dropped to a survey-record low of 53.2 in October, from 55.3 in September. That marked a second successive slowdown in growth following August’s 12-month high (56.6), and meant that the average index reading of 2016 to date (54.7) remained much lower than the long-run trend (58.4).

The slowdown in growth of the sector as a whole was partly reflective of weaker expansions in output and new business. Both rose to the least extent since the survey began in August 2009. That said, the respective rises were still marked, with firms commenting on improved sales as a result of marketing initiatives and discounts. New export orders also increased, albeit only slightly.

Growth of purchasing activity eased to a four-month low in October, but remained faster than that seen for output and new work. Panellists indicated that strong sales projections had been behind the expansion. In line with this, pre-production inventories increased further.

On the jobs front, the rate of hiring moderated to a six-month low. The vast majority of surveyed companies (97 per cent) reported no change since September. Those firms that took on extra staff did so in an effort to expand operating capacity. Backlogs of work were broadly unchanged in the latest period, after having risen back-to-back in August and September.

Meanwhile, total input costs in Saudi Arabia’s non-oil private sector continued to rise at the start of the fourth quarter. That said, the rate of inflation picked up only slightly and remained close to September’s series low. The rises in salaries and purchase costs were relatively modest, with the latter reversing a fall in the prior month but still being the least marked increase on record.

With demand slowing and cost pressures remaining subdued, companies reduced their charges on average in October. Though only marginal, the decline was the second in as many months. Strong competition was also a factor behind the fall, according to panellists.  – TradeArabia News Service