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The UAE’s non-oil private sector

The UAE’s non-oil private sector growth eases in February

The UAE’s non-oil private sector growth slowed in February as indicated by the Emirates NBD Purchasing Managers’ Index (PMI) which declined to 55.1 in February, the lowest reading since September 2017.

New orders increased at a sharp rate last month despite weak export order growth, which points to strong domestic demand in the UAE in February.

“The February PMI survey shows a solid rate of growth in the UAE’s non-oil private sector, although it was slower than we’ve seen in recent months. The key components of the survey point to strong domestic demand but firms were notably more cautious than they were in January about the prospects for output growth over the coming 12 months,” said Khatija Haque, Head of Mena Research at Emirates NBD.

The non-oil private sector’s slowdown was largely reflective of a marked easing in output growth, alongside softer job creation. Weaker growth weighed on business confidence, which registered at a six-month low after falling sharply since the start of 2018.

The main driver [of slowdown] was slower growth in output/ business activity last month. The majority of firms reported no change in their output in February compared with the previous month, while more than 16 per cent of firms reported higher output. While output increased on average in February, the rate of increase was the weakest since May 2017.

February data shows, after picking up in January, employment growth slowed last month with less than 2 per cent of firms surveyed indicating they had boosted hiring last month. Job creation continued in the non-oil private sector, thereby extending the current sequence of employment growth to 22 months. That said, the rate of growth eased to its slowest since June 2017 and was subdued in the context of historical data. Staff costs also moderated after rising sharply at the start of the year. Businesses in the non-oil private sector reduced selling prices on average in February, although the rate of decline was marginal.

Input cost inflation moderated in February as the impact of VAT was reflected in the January survey data. Purchasing activity was strong in February, with both the quantity of purchases and the stock of pre-production inventory rising at a sharp rate. Despite the relatively solid output and new order data, business optimism about future output declined to 57.2 in February from 71.2 in January.

Fewer firms expected their output to be higher in 12 months’ time compared with the January survey, when nearly 43 per cent of firms expected output to be higher in a year’s time.

The softer survey data so far in 2018 is unsurprising given the increase in business activity and new orders in the fourth quarter of 2017, as firms boosted purchases and output ahead of the introduction of VAT.

“Overall, we expect the non-oil sectors of the UAE to grow at a faster rate in 2018 as government increases spending on infrastructure projects and also on public sector wages and transfers. Higher oil prices relative to last year should also support consumer and business sentiment, and liquidity in the banking system,” said Haque.

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