UAE non-oil sector index dips slightly in January

Emirates NBD’s PMI shows the introduction of VAT increased costs

Researchers will examine the spending habits of thousands of families throughout 2019. Mona Al Marzooqi / The National

The UAE's non-oil sector slowed slightly in January from a month earlier, yet remained robust despite the introduction of VAT which affected costs, according to a key gauge of the sector.

Emirates NBD's UAE Purchasing Managers' Index fell to 56.8 in January form 57.7 in December, the lender said on Monday. A reading above 50 suggests the non-oil economy is growing, while a reading below 50 suggests a contraction. The survey is sponsored by Emirates NBD and produced by IHS Markit, a financial information services company.

"The January survey indicates that non-oil sector growth got off to a strong start in 2018, notwithstanding the slight decline in the headline index," said Khatija Haque, head of Mena research at Emirates NBD. "The impact of VAT is evident in the sharp rise in input costs last month.  While selling prices also increased in January, the survey suggests that the full rise in input costs was not passed on to consumers."

The UAE introduced VAT on January 1 at a rate of 5 per cent to help boost government income crimped by oil prices that have slumped from the mid-2014 high of $115 a barrel before recovering to the current level of around $70 a barrel following an agreement on production cuts between Opec and non-Opec members.

Government officials have said the newly introduced VAT will increase consumer prices by 1.4 per cent this year.

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VAT affected pricing and purchasing in January, with purchase costs rising at the fastest pace since November 2011, while wages and salaries also picked up pace, Emirates NBD said.

Stronger economic growth, competitive pricing and new clients helped companies secure an increase in new orders in January. New export orders rose as well for the second consecutive month.

“Higher new orders contributed to a sharp and accelerated rise in business activity. Despite the faster rise in output, backlogs of work continued to accumulate,” the report said.

Although non-oil sector firms increased hiring in January at a “modest” pace to handle higher workloads, the rate of job creation was the fastest since January 2017, the report added.