UAE PMI index slips as export demand slows

The UAE measure of non-oil private sector activity fell to a six-month low amid a drop in exports.

A key gauge of the health of the UAE’s non-oil private sector fell in May amid a slowdown in demand for exports.

Despite the drop to a six-month low, the reading still indicated growth in output and new orders amid a sharp rebound in business activity in the first and second quarters of the year as the country’s economy starts showing signs of improvement following several dismal years because of low oil prices.

The Emirates NBD UAE Purchasing Managers’ Index fell to 54.3 last month from 56.1 in April. Emirates NBD sponsors the monthly survey of business conditions in the emirate’s non-oil private sector undertaken by Markit, a financial information services company. A reading above 50 suggests that the non-oil economy is growing, while a reading below 50 suggests that it is contracting.

“The decline in the headline PMI reading in May comes off very high readings from February through March,” said Khatija Haque, head of Middle East and North Africa research at Emirates NBD.

“The data still shows a solid expansion in output and domestic demand in May, although external demand appears to have softened.”

Even though many key metrics grew at a slower pace in May, respondents to the survey expressed a degree of business confidence that was at its highest since September 2016 and more than a fifth of those polled expected a growth in output. They also forecast an increase in market demand and projects as well as more promotional activities.

Meanwhile in neighbouring Saudi Arabia, the PMI also eased. As in the UAE, export orders dropped.

As a result, the PMI in Saudi Arabia decreased to 55.3 last month from 56.5 in April. Again, despite the decline, the reading suggested that the non-oil economy in the kingdom has remained healthy amid the strongest rate of job creation since August 2016. However, a move however by Saudi Arabia and other major oil producers to extend a global oil production cut may increase risks to overall GDP growth, Emirates NBD noted.

“The decline in Saudi Arabia’s PMI in May was largely due to slower new orders growth, with export orders in particular showing weakness,” said Ms Haque.

“While the non-oil sector has seen stronger growth so far this year compared to 2016, the downside risks to overall GDP growth have increased with the extension of Opec’s production cuts for a further nine months.”

Opec and a group of countries led by Russia have agreed to extend a six-month global oil output cut that ends this month into the first quarter of next year to prop up prices.

Finally in Egypt, the third country where Emirates NBD sponsors a PMI reading, the gauge also slipped. Like the UAE and Saudi Arabia, there was some reason for cheer as the rate of contraction in non-oil business activity eased.

The Egypt PMI fell slightly to 47.3 in May from 47.4 in April. The drop was the second weakest in 10 months. Despite a devaluation of the Egyptian pound last November that has led to an inflow of foreign currency, the rate of inflation remains high, dampening purchasing power among most Egyptians.

On the bright side, however, because of the currency devaluation which led to the Egyptian pound losing more than half of its value against the US dollar, exports have been boosted. As a result, non-oil Egyptian companies had a survey record rise in new export orders.

Follow The National's Business section on Twitter