UAE non-oil private sector growth eases

PMI falls to 54.8 last month from 55.1 in February

Growth momentum in the non-oil private sector continued to ease at the end of the first quarter of 2018, with the latest Emirates NBD UAE Purchasing Managers’ Index (PMI) data signalling the most muted expansion seen since May last year.

Easing new orders, output and employment improvements, alongside stagnant foreign demand for goods and services contributed to the softer growth registered in March.

In terms of costs, firms took advantage of easing price pressures by reducing output charges in an attempt to stimulate client demand.

“Although the UAE’s PMI score continues to moderate from the pre-VAT (value-added tax) boost enjoyed at the end of 2017, it remains firmly in expansionary territory, and continued discounting by firms should help stimulate demand. Firms are more positive towards future output than they were last month, reflecting new orders that remain strong at 60.2,” said Daniel Richards, Mena Economist at Emirates NBD.

Headline PMI eased to 54.8 in March, down from 55.1 in February. Output growth softened to a 23-month low during the latest survey.

That said, the rate of expansion remained marked overall. Some clients linked the rise to new project wins. Saudi Arabia’s business conditions improved at the slowest rate since the purchasing managers index survey began, with the headline PMI falling to 52.8 in March, from 53.2 in February.

“The fall in the pace of expansion in Saudi Arabia’s non-oil private sector to its lowest levels on record last month will prompt firms to continue price discounting in a bid to galvanise demand; output prices were below the neutral 50 level which delineates contraction and expansion for the second month running in March,” said Daniel Richards, Middle East and North Africa Economist at Emirates NBD.

Despite the sluggish growth at present, business optimism at 71 remains far above the 12-month average of 61.4. Incoming new business grew at the slowest rate on record during March. The expansion was only fractional overall.

The recent introduction of value-added tax (VAT) continued to damp customer demand, whilst panel respondents also commented on competitive pressures.

Incoming new business remained in sharp growth territory, posting above the long-run average in March. However, the rate of expansion was at a fourmonth low.

Analyts say this slowdown was somewhat inevitable following the surge in activity recorded in the final months of 2017, as output was stepped up prior to the implementation of a 5 per cent VAT in January.