UAE’s non-oil business growth declines in May

Growth in the United Arab Emirates’ non-oil business slowed down last month, although the rate of expansion remained strong, Emirates NBD said on Monday.

The seasonally adjusted Emirates NBD Purchasing Managers’ Index (PMI) for the UAE declined to 54.3 in May from 56.1 in April.

“The decline in the headline PMI reading in May comes off very high readings from February through March.  The data still shows a solid expansion in output and domestic demand in May, although external demand appears to have softened,” Khatija Haque, head of MENA research at Emirates NBD, said in a statement.

Output and business activity of the firms surveyed increased on average (57.4) last month, but the rate of growth was the slowest since April 2016, the survey showed.  New order growth also slowed (57.5) as export orders were broadly unchanged month-on-month. 

Employment was slightly higher in May at 50.7.  Both input and output prices declined last month, as firms competed to secure new work, the report noted.

The companies surveyed, however, were optimistic about the coming year, with the business optimism component of the survey rising to 61.8 in May – the highest reading in nine months.

The firms also increased their purchasing activity and inventories in anticipation of future demand, the report said.

“The average PMI reading year-to-May is 55.6, well above the average of 53.4 recorded in the same period last year.  This suggests that non-oil growth has accelerated year-on-year, in line with our expectations at the start of the year,” Haque said.

However, the UAE, along with other OPEC countries, has agreed to extend oil production cuts through March 2018, which will weigh on total GDP growth in the second half of this year, she said.

“As a result, the downside risks to our 2017 GDP growth forecasts have increased.  However, we await the release of official 2016 growth data before changing our forecast,” Haque added. 

The PMI is based on data compiled from a survey of companies in manufacturing, services, construction, and other non-oil sectors. A level over 50 indicates an increase, while below 50 indicates contraction.