UAE and Saudi non-oil activity improves in May

The UAE and Saudi Arabia experienced a resurgence in nonoil business activity in May, according to the latest Emirates NBD surveys, a turnaround from dips earlier this year and, for Saudi Arabia, an all-time low recorded in April.

The headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – rose to 56.5 in May, from 55.1 in April. The figure was indicative of a “sharp improvement” in UAE business conditions, above the long-run average, Dubai’s biggest bank said.

“The strong PMI reading in May was partly due to a rebound in export orders – reflecting improved external demand conditions – as well as significant price discounting domestically,” said Khatija Haque, head of Mena research at Emirates NBD.

The UAE PMI has been rising steadily since March, when it hit a 10-month low, declining to 54.8 from 55.1 in February.

The May reading was the highest in four months.

GCC economic growth is expected to pick up in 2018 and 2019, after bottoming out last year, as the price of oil rebounds and non-oil business activity recovers, according to the International Monetary Fund’s regional outlook published in April.

Average GDP growth for the region is expected to rise to 1.9 per cent in 2018 and 2.6 per cent in 2019, the fund said.

In the UAE, the improved PMI reading was driven by new export business reaching a 30-month high alongside reports of stronger demand from neighbouring GCC countries, Emirates NBD said.

Companies surveyed by the bank also reported the highest level of confidence in the market this year since the index began in 2012 – the result of more robust market conditions, new project wins and strong growth impetus linked to Expo 2020 Dubai, according to the bank.

Reflecting this renewed confidence, companies hired additional staff at the fastest pace in four months, however the rate of growth was only slight overall.

Companies also reported a reduced level of input cost inflation in May, although profit margins remained under pressure, the bank said.

Meanwhile, Saudi Arabia saw its strongest expansion in three months, rising to 53.2 in May from a record low of 51.4 in April, Emirates NBD said yesterday.

Ms Khatija said the Saudi index is “still low by historical standards” and reflects a slower rate of growth in the non-oil private sector than last year.

“The survey data suggests that government spending and higher oil prices year-to-date are not boosting economic activity as much as they have in the past, although firms remained highly optimistic about their future prospects,” she said.

Output growth at non-oil private sector companies accelerated in May, according to the survey, and the pace of expansion overall was robust, with many companies reporting an uptick in business activity and new work.

“Following the first recorded contraction in stocks of purchases in April, May data signalled a return to growth … albeit small,” Emirates NBD said.