Business growth in the UAE's non-oil private sector slumped to a four month low in December, according to the latest HSBC Purchasing Managers' Index (PMI).
Output and new order growth both rose at weaker rates last month while employment levels stagnated, the report said. The situation is also unlikely to improve dramatically in the first quarter of 2012 because of the gloomy global economic scenario.
The HSBC PMI, which measures business activity of 400 private firms in the UAE across manufacturing, services, construction and retail sectors, dropped to 51.7 points in December from 52.5 points in November. The adjusted index remains above the 50-point mark which separates growth from contraction. "Output from the UAE non-oil private sector continued to rise during the latest survey period," the HSBC report said. "However, the rate of increase moderated since November to a three-month low, reflecting an easing trend in new business growth and a less-marked depletion of unfinished work," it added.
The PMI is a composite indicator designed to provide a single-figure snapshot of the performance of the non-oil private sector.
"Although a weak PMI is indicative of sluggish growth of the non-oil private sector in the UAE, we expect other factors to contribute to an upward growth trajectory," the Banking and Financial Services Practice at Frost and Sullivan said in a note.
"A rebounding real estate sector, profitable banking sector and government reforms for industrial cities in Abu Dhabi and Dubai are some of the factors that are likely to contribute to the manufacturing activity in the economy. However, all these growth-inducing measures are expected to be overshadowed by the uncertainty surrounding the Eurozone crisis. Combinations of the aforesaid factors are expected to result in a marginal improvement of the PMI statistics indicating a sluggish growth during the next two quarters," Frost and Sullivan added.
UAE firms saw solid output growth in Dec-ember but the rate of increase moderated to a three-month low, the data showed. Total new order receipts also rose at a weaker pace, reaching 56.0 points after 56.2 points in the previous month.
Non-oil private sector employment stagnated last month for the first time in the survey's 29-month history, with the index coming in at 50.0.
"Overall, the data continue to show that the UAE's relatively diverse private non-oil sector is slowing due to its exposure to external conditions," the research consultancy Capital Economics said in a note.
"Moreover, with problems still hanging over the UAE's banking sector, domestic demand looks unlikely to be able to pick up the slack left by weaker external demand.
"Meanwhile, labour market conditions have taken a turn for the worse. Hiring stagnated in December as the employment component dropped to 50.0 from 50.9 in the previous month. This is the lowest reading since the series began in August 2009," the note added.