UAE private sector growth momentum slowed in October

November 4, 2016 903

Dubai: The UAE’s non-oil private sector lost growth momentum for the third consecutive month in October with the Emirates NBD Purchasing Managers’ Index (PMI) declining to a six-month low of 53.3 in October, indicating a more modest rate of expansion last month.

The lower headline index masked very strong growth in output last month, with this subindex at 60.6, only slightly lower than September’s 61.2 reading.

New orders growth was broadly unchanged from September at 53.2. This is markedly slower than the readings of 57.5 and 57.0 in July and August, and suggests that demand has moderated. In particular, new export orders declined for the fourth straight month in October.

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.

“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 the fourth quarter after a relatively strong third quarter, but the data still points to solid expansion in the UAE’s non-oil private sector in October,” said Khatija Haque, Head of Mena Research at Emirates NBD.

The headline PMI 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).

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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. Input prices picked up in October after softening slightly in September. Both purchase costs and staff costs rose last month, with purchase costs rising at a slightly faster rate. Overall input price inflation remains relatively modest however. This has allowed firms to continue to cut output prices in what remains a competitive environment. Output prices in the UAE PMI survey have now declined for 12 consecutive months.

Despite the subdued output prices 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. The data also shows a near-stagnation of staffing levels during October. The latest rise in employment was negligible, with nearly the entire survey panel (98 per cent) 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.

“The October PMI reading suggests that growth momentum in the UAE’s non-oil private sector slowed at the start of the fourth quarter following a relatively strong third quarter. Year-to-date, the PMI averaged 53.8, well below the average of 56 in 2015. Consequently, we remain comfortable with our real GDP growth forecasts of 3 per cent for the UAE this year, down from 3.8 per cent in 2015,” said Haque.


Zawya