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UAE’s non-oil private sector reports slower growth in Dec 2015

UAE’s non-oil private sector reports slower growth in Dec 2015

DUBAI: The UAE’s non-oil private sector reported a slower growth in December 2015 with business conditions improving at the slowest rate in 40 months, according to the Emirates NBD UAE Purchasing Managers’ Index (PMI).

Data showed the PMI declined to its lowest level in over four years, with a reading of 53.3 in December 2015. While the PMI was still above the neutral 50 level that separates expansion from contraction, it points to slower growth in the UAE non-oil private sector.

The average PMI for the fourth quarter of 2015 was 53.9 well below the 59.3 average recorded in the same quarter last year and also lower than the average PMI for the third quarter of 2015, indicating that growth momentum slowed in the final quarter of last year.

Data for December showed that a key factor weighing on the non-oil private sector as a whole was relatively muted growth of new work — the pace of expansion was the weakest since August 2011. Output, employment and input buying also rose more slowly, while charges decreased as firms competed to secure new clients.

“The PMI data point to weaker domestic and external demand in the fourth quarter of 2015 which is reflected in lower readings for new orders, employment, output and the backlog of work. Indeed for 2015 as a whole, the average PMI was lower than for 2014, signalling slower — but positive — growth in the non-oil private sector,” said Khatija Haque, Head of MENA Research at Emirates NBD.

The main reason for slower expansion last month was softer growth in new orders, with this component of the PMI easing to 55.7 in December from 57.5 in November, the lowest level since August 2011. Growth in export orders was also more modest, with this index declining to 53.4 last month from 56.1 in November. The output index was relatively robust at 57.2 but even this was lower than November’s reading.

The rate of jobs growth slowed in December, after having rebounded slightly in November. There was no change in the backlogs of work in December, reflecting the relative softness of new order growth and suggesting very little pressure on production capacity.

On the price front, cost pressures remained modest in December. Both salaries and purchasing costs rose more slowly, thereby restricting the overall rate of input price inflation. Data for charges pointed to something of a squeeze on UAE non-oil private sector businesses. Output prices fell for the second month running, with some panellists commenting on the need to offer discounts in order to capture new business.

Despite the slower non-oil private sector the UAE’s overall GDP growth for 2015 is unlikely to be impacted, thanks to higher oil output.

“Slower non-oil growth in the UAE in 2015 is likely to have been at least partially offset by increased hydrocarbon growth, with Bloomberg estimates showing that UAE crude oil output rose 4.1 per cent year on year in 2015. We remain comfortable with our estimate of 4 per cent real GDP growth in 2015 of, down from 4.6 per cent in 2014.