Private sector economic activity in the UAE faces a summer lull in the month of June as indicated by the Emirates NBD Purchasing Managers’ Index (PMI) declining slightly, falling to 53.4 from May’s 54.
In line with recent trends, the UAE’s non-oil private sector expanded at a steady pace in June. The output index stood at 58.9 last month, coming off an eight-month high in May.
New order growth also slowed in June, despite some improvement in external demand. The new export orders index rose to 51.6, the highest level in four months but still signalled relatively weak growth in this component.
“The softening in new business and output growth in June may partly be due to the earlier start to Ramadan this year. Nevertheless, the output index remains relatively high and we continue to expect solid non-oil growth in the UAE this year,” said Khatija Haque, head of Mena Research at Emirates NBD.
Both employment and purchasing activity rose only modestly as cost pressures intensified to the most since September last year, but output prices continued to fall regardless.
The report shows that the overall PMI is also constrained by anaemic employment gains. The employment index stood at 50.5 in June, only marginally above the neutral 50-level and with most respondents (97 per cent) indicating ‘no change’ in payrolls last month. The employment index has averaged just 50.9 in the first half of 2016, down from 52.8 in the first half of 2015. Backlogs of work increased slightly in June, but remain low by historical standards.
The relative weakness of order books was borne out by muted growth of purchasing activity in June. The pace of expansion had eased to a 56-month low in May, and it quickened only slightly in June. Stocks of raw materials and semi-manufactured goods rose at a similarly modest rate. Those firms that raised inventory levels did so in expectation of future improvements in demand.
Input prices rose at their fastest pace in 10 months, with both purchase costs and staff costs accelerating. Both salaries and purchase prices rose at a faster pace, leading the overall rate of inflation to reach a nine-month high. However, firms were not able to pass on these higher input costs and output prices eased again last month. Nevertheless, the decline in output prices in June was the smallest since November 2015.
However, the rise in input costs was insufficient to push charges higher. Output prices fell for the eighth month running, albeit fractionally. Some panellists indicated that they had offered discounts as part of promotional efforts, but most signalled no change since May.
“The June PMI data is consistent with our view of solid, but slower growth in the non-oil sectors of the UAE this year. The start of Ramadan earlier in June may also have had some impact on activity compared with June 2015, and we would not be surprised to see softness in the July PMI readings as well, particularly as there are fewer than 20 working days this month,” said Haque.
By Babu Das Augustine
