The UAE non-oil economy continued to expand last month, though still at the slower pace of recent months and with cost pressures on producers increasing, according to the latest survey of purchasing managers by Emirates NBD.
The purchasing managers index (PMI), which tracks views in the non-oil private sector on a range of business climate indicators, was at 53.4 last month, down from 54 in May. Though a reading above 50 indicates expansion, the PMI in recent months has been well below the 56.3 average of the past three years as the cooling effect of lower oil prices continues.
The UAE economy has been among the most resilient to the oil price crash because of its diversity and moves by the government to cut spending – including subsidies – to deal with lower revenue.
“The UAE is in a better position because of the diverse state of its economy and it helps a lot that the government jumped in early on to adjust to new oil prices,” said Mohamed Abu Basha, an economist at the Cairo investment bank EFG Hermes.
Still, the Emirates NBD PMI results showed that while the non-oil sector remained expansionary, there were indications of fragility.
“The rate of hiring was among the weakest recorded by the survey and marginal overall,” the report said. “This was in line with the near-stagnant trend seen over the second quarter.”
But the report found also that rising labour costs helped push producers’ costs last month to a nine-month high. At the same time, output prices fell for the eighth month running, meaning that producers’ margins were squeezed.
“Some panellists indicated that they had offered discounts as part of promotional efforts,” according to the survey.
The PMI reading was in line with most recent predictions that the UAE economy would continue to grow but at a rate below that of in previous years.
“The output index remains relatively high and we continue to expect solid non-oil growth in the UAE this year,” said Khatija Haque, the head of Middle East and North Africa research at Emirates NBD.
That echoes last week’s report by Monica Malik, Abu Dhabi Commercial Bank’s chief economist, who lowered her UAE economic growth forecast for this year from 2.5 per cent to 2.3 per cent.
The downgrade was partly to do with the depressing effect that the UK’s vote to exit the European Union might have on economic growth broadly, but also balanced the near-term slowing in the UAE because of lower oil revenue and government spending against the increased project spending for initiatives such as Dubai’s Expo 2020.
amcauley@thenational.ae
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