Private sector non-oil business activity rebounded last month in the UAE and Saudi Arabia as buying picked up pace, spurred by discounts and increased marketing measures. However, it has come at a cost as lower selling prices have put pressure on the profitability of businesses, according to IHS Markit’s latest purchasing manager index.
The UAE purchasing managers’ index (PMI) rose to 54.2 in November from 53.3 in October, a six-month low, said Emirates NBD, the sponsor. Meanwhile, in Saudi Arabia, the PMI advanced to 55 in November from a survey record low of 53.2 in October.
The Dubai-based bank sponsors the monthly survey of business conditions in the UAE, Saudi Arabia and Egypt non-oil private sector that’s undertaken by IHS Markit, a financial information services company. A reading above 50 indicates that the non-oil economy is growing, while a reading below 50 suggests that it is contracting.
In the UAE, the PMI report noted that companies lowered their charges on average for the 13th straight month but on the flip side stronger demand led to faster job creation.
As a result, job growth in the UAE accelerated to a four-month high as a number of businesses required additional manpower to cater for new projects.
Still despite the gains, the authors of the report noted that the paces of hiring growth still remained below the survey average.
“The November PMI data is encouraging as it continues to point to strong activity growth in the UAE, even as external demand remains soft,” said Khatija Haque, the head of Middle East and North Africa research at Emirates NBD. “However, the environment remains competitive and margins continue to be squeezed by rising input costs and declining output prices.”
The data from Saudi Arabia told a slightly different story. While there was a rebound like there was in the UAE, most companies left headcounts unchanged with the rate of hiring only picking up modestly
But like the UAE, cost pressures for businesses intensified. The report suggested that conditions had improved after Saudi Arabia tapped the international debt market for the first time in October as part of the country’s wide ranging efforts to plug its budget deficit.
“All components of the Saudi PMI increased in November, with output and new orders rebounding strongly from October,” Ms Haque said.
“This is consistent with other evidence showing non-oil sector activity recovering last month, following the kingdom’s first international debt issue in late October.”
Since the end of 2014, the UAE and Saudi economies have suffered as the price of oil went into free fall, prompting cuts in public spending and falling consumer demand. The price of oil has dropped by as much as 70 per cent since June 2014 as slowing global growth reduced demand for energy and production increased in the US as unconventional oil and gas extraction, known as fracking, boomed.
Saudi Arabia, the world’s biggest oil producer, has been worse hit than the UAE because it is more reliant on oil and its economy is less diversified. Non-oil GDP growth in the UAE is expected to slow to 2.4 per cent this year from 3.7 per cent last year and may accelerate to 2.7 per cent in 2017, according to the International Monetary Fund.
mkassem@thenational.ae
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