PMI figures showed an easing from recent growth in activity
As activity and demand growth softened for the third month in a row in August, business conditions in the UAE non-oil private sector improved at a modest pace, a survey has revealed.
However, the level of optimism remained strong by historic standards, with firms expecting a boost to demand next year, in particular due to the Expo 2020 and improving market conditions, the survey report by HIS Markit said.
While the headline reading subsequently dropped to its lowest in eight years, firms reduced their charges for the eleventh successive month amid tough competitive pressures as overall input prices remained unchanged, results of the latest survey by IHS Markit.
The headline seasonally adjusted IHS Markit UAE Purchasing Managers' Index (PMI) fell from 55.1 in July to 51.6 in August, the lowest reading for eight years. This pointed to only a modest improvement in business conditions and the third successive month in which growth has slowed.
David Owen, Economist at IHS Markit, said the PMI figures showed an easing from recent growth in activity. The headline PMI reading of 51.6 signalled only a modest improvement in business conditions, due to new order growth slowing for the third month in a row. Job numbers were broadly unchanged after five successive months of increases, while firms also looked to clear stock levels.
He said selling charges continued to fall, as competitive pressures remained heightened. "The dip in activity growth dampened business sentiment in August, although the underlying forecast was still strong. With the Expo 2020 coming, many businesses were positive that the market will see strong levels of activity in the coming year," said Owen.
Vijay Valecha, chief investment officer, Century Financial, said the global slowdown has impacted the UAE o with the IHS Markit's Purchasing Managers' Index dropping to an eight year low of 51.6 from 55 a year ago.
"A level of 50 separates growth from contraction. The output component of the index has fell to 55.2 from 63.1 while the new orders component showed a month on month decline.," said Valecha.
"The positive factor about UAE economy is that the index shows major components are in expansion territory and this is markedly better than the world scenario. Nevertheless, the stagnating global economy might trigger a policy response from UAE federal government, one of them being a fiscal stimulus," said Valecha.
IHS Markit report said that activity in the non-oil economy increased at a notably softer rate compared to July, with weaker demand curbing the expansion. The rate at which output rose was the least marked in just over six years.
"New orders received by UAE firms increased at a solid, but relatively subdued, pace in August. Customer demand remained strong, according to panellists, but the continuation of heightened market competition hampered growth," said the report.
According to the report, hiring activity also eased over August, with latest data showing a broadly unchanged labour force in the non-oil sector. This ended a five-month sequence of marginal increases in employment.
Sales to foreign customers also recorded a weaker upturn. "Companies thus looked to pare back on purchasing activity growth in the latest survey period. Input purchases rose at the softest rate since last October, albeit at a pace similar to the series trend. Notably, this led to a slight reduction in inventories of purchase," it said.