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UAE PMI falls to near-two year low to signal cooling in growth momentum

UAE. Non-oil private sector firms in the UAE reported the weakest improvement in business conditions since August 2013 during June. Marked slowdowns in growth of output and new business were at the forefront of the overall deceleration, while employment continued to rise at a solid pace.

Meanwhile, inflationary pressures from both input costs and output charges were negligible.

The survey, sponsored by Emirates NBD and produced by Markit, contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.

Commenting on the Emirates NBD UAE PMITM, Khatija Haque, Head of MENA Research at Emirates NBD, said: “Although the June PMI data was the softest in two years, it signals solid growth in the non-oil private sector. Furthermore, it is difficult to determine whether the softening will continue into Q3, particularly when bearing in mind the Islamic calendar. We attribute some of the slowdown in the June data to the start of Ramadan, and we would expect to get a clearer picture of underlying growth momentum later in the year.”

Key Findings
- Output rises further, but rate of expansion eases sharply
- New orders increase at slowest pace since April 2012
- Cost pressures ease for second month running

After adjusting for seasonality, the headline Emirates NBD UAE Purchasing Managers’ Index™ (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – dropped to a 22-month low of 54.7 in June.

Down from 56.4 in May, the latest reading contributed to the weakest quarter of growth since Q3 2013 (56.0). That said, the rate of improvement remained faster than the series average and solid overall.

Latest data indicated that the overall slowdown was mirrored by weaker expansions in output and new orders during June. Activity growth eased to a 20-month low, while new work inflows rose at the slowest pace since April 2012.

However, the respective rates of increase remained marked overall. According to panellists, improved marketing strategies, new client wins and new product launches all helped to boost demand conditions, which in turn led to another expansion in output.

A weaker rise in new export work contributed to slower growth of total new business in June. The latest increase was the weakest since the end of 2013, but remained broadly in line with the average recorded over nearly six years of data collection.

Similarly, UAE non-oil private sector firms raised their input buying more slowly in the latest period. Although solid overall, the rate of expansion was the least marked in nearly two years. Subsequently, pre-production inventories rose only modestly.

Meanwhile, the rate of job creation was little-changed from the solid pace seen in the previous two months during June. Those companies that hired additional staff commented on the opening of new branches and efforts to expand operating capacity.

Total input costs faced by UAE non-oil private sector businesses increased for the third straight month in June, albeit only fractionally. The rate of inflation was muted relative to the long-run trend, helped by slower rises in both purchase prices and staff costs in the latest period.

Nonetheless, higher input prices were reported to have driven average tariffs upwards during June. Output charges rose for the first time since January, although the rate of inflation was only slight. According to anecdotal evidence, competitive pressures continued to restrict firms’ pricing power.

The next UAE PMI Report will be published on August 4th 2015 at 09:30 (DUBAI) 

Photo Caption: Khatija Haque, Head of MENA Research at Emirates NBD

About Emirates NBD UAE Purchasing Managers’ Index
The Emirates NBD UAE Purchasing Managers’ Index is based on data compiled from monthly replies to questionnaires sent to purchasing executives in approximately 400 private sector companies, which have been carefully selected to accurately represent the true structure of the United Arab Emirates non-oil economy, including manufacturing, services, construction and retail. The panel is stratified by Standard Industrial Classification (SIC) group, based on industry contribution to GDP.

Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the ‘Report’ shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the ‘diffusion’ index. This index is the sum of the positive responses plus a half of those responding ‘the same’.

The Purchasing Managers’ Index™ (PMI™) is a composite index based on five of the individual indexes with the following weights: New Orders – 0.3, Output – 0.25, Employment – 0.2, Suppliers’ Delivery Times – 0.15, Stock of Items Purchased – 0.1, with the Delivery Times index inverted so that it moves in a comparable direction.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease. Markit do not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series.

About Emirates NBD
Emirates NBD is a leading banking Group in the region. As at 31st March 2015, total assets were AED 367.5 billion, (equivalent to USD 100). The Group has a leading retail banking franchise in the UAE, with more than 215 branches and over 889 ATMs and CDMs in the UAE and overseas. It is a major player in the UAE corporate and retail banking arena and has strong Islamic banking, Global Markets & Treasury, Investment Banking, Private Banking, Asset Management and Brokerage operations.

The Group has operations in the UAE, Egypt, the Kingdom of Saudi Arabia, Qatar, Singapore, the United Kingdom and representative offices in India, China and Indonesia.
The Group is an active participant and supporter of the UAE’s main development initiatives and of the various educational, environmental, cultural, charity and community welfare establishments.

About Markit
Markit is a leading global diversified provider of financial information services. We provide products that enhance transparency, reduce risk and improve operational efficiency. Our customers include banks, hedge funds, asset managers, central banks, regulators, auditors, fund administrators and insurance companies. Founded in 2003, we employ over 3,500 people in 10 countries. Markit shares are listed on Nasdaq under the symbol MRKT.

For more information, please see www.markit.com

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