Thursday 28 March 2024
 
»
 
»
OUTPUT, NEW ORDERS RISE

The non-oil private sector faced lower input costs during May.

UAE, Saudi non-oil business continues upsurge in May

DUBAI/RIYADH, June 5, 2017

The non-oil private sector in both the UAE and Saudi Arabia saw further improvement in business conditions during May, with growth underpinned by rises in output and new orders, according to the latest Emirates NBD PMI report.

UAE

Although rates of expansion in output and new orders eased in both cases, they remained sharp. After a seven-month sequence of inflation, the non-oil private sector faced lower input costs. Meanwhile, firms offered discounts to their own clients for the second successive month.

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.

Commenting on the UAE PMI survey, Khatija Haque, head of Mena Research at Emirates NBD, said: “The decline in the headline PMI reading in May comes off very high readings from February through March.  The data still shows a solid expansion in output and domestic demand in May, although external demand appears to have softened.”

Key findings

Headline index at six-month low of 54.3 in May
Sharp, but slower, rates of increase in output and new orders
Overall input prices reduced for the first time in eight months

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 – edged down from 56.1 in April to 54.3 in May. Though the latest reading eased to a six-month low, it signalled a robust rate of expansion of the non-oil private sector. Notably, the latest figure was broadly in line with the long-run average.

New business inflows rose sharply in May, despite the rate of growth easing to a five-month low. According to anecdotal evidence, a general improvement in economic conditions was supplemented by promotional activities. Meanwhile, there were signs of weakness in client demand in external markets as new export orders rose only marginally.

The upward movement in the headline PMI was also supported by greater business activity which rose at a sharp, albeit slightly weaker rate. Panellists commented on strong demand conditions and new projects.

Meanwhile, employment continued to rise across the non-oil private sector in May as companies hired extra staff in response to greater output requirements. Nevertheless, employment rose at the weakest rate in seven months. Capacity pressures showed signs of easing, as evidenced by only a marginal rise in backlogs.

With market demand increasing, firms were encouraged to engage in input buying. Furthermore, the rate of expansion accelerated from the preceding month and was robust overall. As a result, pre-production inventories continued to increase. In both cases, there were reports of forecasts of stronger sales growth.

After seven successive months of inflation, firms faced lower input costs in May. The rate of decline was marginal, however. Some survey respondents reported higher raw material costs, but this was offset by others citing strong competition among suppliers.

In the absence of substantial cost pressures, and faced with intense competition, companies lowered their charges for the second consecutive month.

Finally, the degree of business confidence climbed to its highest level since September 2016, with more than a fifth of the panel forecasting growth in output. Market demand and projects are expected to rise, with growth also set to be bolstered by promotional activities.

Saudi Arabia

Saudi Arabia saw a decline in rates of expansions in output and new orders. On the price front, cost inflation dropped to a survey-record low. Consequently, selling prices were lowered marginally. Meanwhile, new export orders fell for the second month in succession, reflecting intense competition in external markets.

“The decline in Saudi Arabia’s PMI in May was largely due to slower new orders growth, with export orders in particular showing weakness,” said Haque.

“While the non-oil sector has seen stronger growth so far this year compared to 2016, the downside risks to overall GDP growth have increased with the extension of Opec’s production cuts for a further 9 months.”    

Key findings

Headline index at 55.3 in May
Sharp, albeit slower, expansions in new orders and output
Input price inflation at survey-record low

The headline seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index edged down to 55.3 during May (from 56.5 in April). Despite falling to a six-month low, the latest reading signalled a robust improvement in the health of the sector.

Central to the latest improvement in business conditions was a sharp increase in output. Panellists commented on strong underlying demand and more projects. Nevertheless, the pace of growth was at a six-month low.

New orders continued to expand, as has been the case since the inception of the survey in August 2009. Though easing to the weakest in seven months, the rate of growth was sharp overall. Panellists linked the improvement in market demand to greater promotional activities.

Underlying data suggested that growth in total new work was led by the domestic market as new export orders fell for the second consecutive month. Anecdotal evidence pointed to competitive pressures globally.

Payroll numbers increased further in May, thereby stretching the current period of employment growth to 38 months. The rate of job creation was the strongest since August 2016, but only marginal.

Overall input price inflation in the Saudi Arabian non-oil private sector eased to a survey-record low and was marginal. As a result, some firms offered discounts. The rate of decline in charges was, however, fractional.

In response to greater output requirements, firms engaged in further input buying. In spite of easing to a 13-month low, the rate of growth was sharp overall. Subsequently, stocks of purchases continued to increase.

The degree of positive sentiment climbed to the highest in over a year across the Saudi Arabian non-oil private sector. This reflected new projects in the pipeline, as well as expectations of further improvements in demand. – TradeArabia News Service




Tags: Emirates NBD | Private sector | non-oil | PMI index |

More Finance & Capital Market Stories

calendarCalendar of Events

Ads