The growth of private sector business activity in the UAE eased to a three-month low in June, a purchasing managers’ survey showed on Tuesday.
The HSBC UAE Purchasing Managers’ Index dropped to 53.2 points in June from an 11-month high of 53.8 in May, but was still indicative of a solid improvement in operating conditions.
The index measures the performance of the manufacturing and services sectors. The survey was conducted on 400 companies in the private sector.
“I’m not troubled by the modest easing in the June PMI reading which points to a non-oil economy still firmly in growth territory. I suspect there are further declines to come, but the positive new orders numbers suggest that the economy is managing to maintain some momentum despite the weak global backdrop and falling energy prices,” said Simon Williams, chief economist for the Middle East and North Africa at HSBC. Last month, UAE Minister of Economy Sultan bin Saeed Al Mansouri revised his expectations for UAE GDP growth to around three per cent from 4.2 per cent in 2011 as the global economy remains weak.
UAE firms saw output growth slow to 54.6 points in June, the weakest level in three months, from 54.8 in May. New orders edged down to 58.4 from an 11-month high of 59.1.Employment across the UAE’s non-oil private sector rose for a sixth month in a row, the survey showed.
Output prices slipped below the 50 mark in June, the first such fall in 10 months, while input prices dropped to a five-month low of 55.2 points. Consumer price inflation in the UAE, the world’s No. 3 oil exporter, remained at 0.8 per cent on an annual basis in May. It is forecast to climb to 2 per cent this year from 0.9 per cent in 2011 and 2010.
The PMI was again largely supported in June by a steep rise in new order volumes. Panellists reported positive operating conditions, with efforts to secure new work supported by marketing and advertising. Foreign sales also continued to increase during June, with the rate of growth reaching a four-month high, the survey revealed.
“Faced with another steep increase in order volumes, non-oil private sector companies upped their production in the latest survey period. Although a three-month low, the rate of growth remained marked as companies tried to deal with higher workloads,” the report said.
Rising workloads encouraged companies to take on extra staff during June; employment rose for the sixth successive month, with the rate of expansion the steepest since last July. Despite an expansion of capacity, backlogs of work continued to rise modestly, stretching the current run of growth to four months. As business requirements increased further during June, UAE non-oil private sector companies raised their purchasing activity for a twenty-third month in a row. According to the latest data, growth of input buying was the sharpest since June 2011. This also enabled companies to add to their inventories; stocks of purchases rose for a second successive month, with the modest increase reflective of positive forecasts for sales and production over the coming months.
June’s survey indicated that sales were in part supported by a marginal drop in output charges, the first reduction since August 2011. There were reports from panellists of strong competitive pressures encouraging the use of discounting.
Finally, input costs rose further in June, although the rate of inflation moderated to a five-month low. Purchase prices rose at a pace that was only slightly above April’s near one-and-a-half year trough, but with suppliers trying to take advantage of the positive demand environment, inflation remained marked. Salary costs rose modestly in June.