The UAE’s non-oil private sector expansion strengthened in November, having eased to a two-and-a-half year low during October, while faster growth of new work helped Saudi Arabia’s non-oil private sector to regain momentum, a report said.
UAE
Business conditions improved solidly, with the highlight being a marked and sharper rise in output, added the survey sponsored by Emirates NBD and produced by Markit.
New business and employment also increased, although growth in the former was the weakest since April 2012. Meanwhile, companies saw their pricing power diminish in November. Input costs rose further, but competitive pressures meant that charges fell regardless.
The rebound in the November PMI, and particularly the strength of output and new order growth, is encouraging,” said Khatija Haque, head of Mena Research at Emirates NBD.
“While the PMI data points to slower non-oil growth in the UAE this year relative to 2014, it is important to recognize that the non-oil economy is still expanding at a solid rate despite the sustained weakness in oil prices, tighter liquidity conditions and increased uncertainty about government spending in the region as we head into 2016.”
Key findings
Faster rise in activity underpins healthier improvement in business conditions
Rate of expansion in new orders remains solid, despite easing further
Charges decline amid strong competitive pressures
The seasonally adjusted PMI, which covers manufacturing and services, rose to 54.5 last month from 54.0 in October.
Underlying data indicated that higher output was a key driver of the overall expansion. Activity rose more quickly in November, having previously increased at the slowest rate in two years during October. New business gains were behind rises in output, according to panellists.
Though remaining marked, growth of new work failed to accelerate in November. In fact, the respective index dropped slightly to a 43-month low. Anecdotal evidence nevertheless pointed to new client wins resulting from better marketing, while data highlighted a second consecutive expansion in new export work. However, some firms suggested that new orders had been undermined by increased competition.
Non-oil private sector employment in the UAE continued to rise in November, thereby extending the current sequence of hiring to 47 months. The rate of job creation was the quickest since July, with firms reportedly taking on extra staff in preparation for the start-up of new projects. Backlogs of work also increased, albeit only marginally.
Growth of buying activity picked up in line with output requirements during November. The expansion was the most marked in three months, and it contributed to another increase in stocks of purchases. A number of panellists mentioned that they had raised inventories in response to further inflows of new business.
Meanwhile, a weaker rise in purchasing costs led to an easing in the overall rate of input price inflation. Total cost pressures were at a five-month low, although they remained broadly similar to the average seen over 2015 as a whole.
Firms decided to cut charges in spite of higher input costs during November. Tariffs were driven lower by greater competition, but the rate of decline was only slight overall.
Saudi Arabia
The overall improvement in business conditions was also supported by further expansions in output, employment and stocks of purchases. The respective rates of growth all eased fractionally since October. Meanwhile, data for prices showed divergent trends, with charges falling despite further inflationary pressure from input costs. Companies suggested that this was due to stronger competition.
“The improvement in the Saudi Arabian PMI last month is encouraging, particularly against a backdrop of sustained low oil prices and an announced freeze in government spending at the start of Q4,” said Haque.
“The faster growth in new orders and new export orders in November, and continued strength in output, suggests that both domestic and external demand are supportive of non-oil growth even as momentum has slowed from 2014. We expect that the rise in oil production this year has helped to support manufacturing, underpinning activity in the non-oil sectors of the economy.”
Key findings
PMI climbs from record low to signal stronger improvement in business conditions
Growth of new business accelerates to three-month high, but rates of expansion in output and employment ease slightly
Adjusted for seasonal factors, the h Emirates NBD Saudi Arabia PMI posted 56.3 in November, up from 55.7 in October. The latest reading pointed to an upturn in growth from the record low seen in the prior month, but it was still one of the lowest recorded in the series history.
Underpinning the pick-up in growth momentum was a sharper rise in new orders placed with Saudi Arabia’s non-oil private sector firms. The rate of expansion quickened to a three-month high, supported by a marked increase in new export business. Panellists indicated that better marketing had resulted in new client wins both domestically and abroad.
Higher new work contributed to another sharp rise in output during November. The rate of growth eased for the third straight month, however, and was slower than the long-run trend.
Reflective of greater business requirements, payroll numbers increased for the twentieth consecutive month in November. That said, with the vast majority of the panel (95%) noting no change in employment, the pace of hiring was only modest overall. Concurrently, pressure on capacity remained, despite the respective index for backlogs slipping to a recent low.
In contrast, purchasing activity rose more quickly in November. According to respondents, input buying was raised in line with growth of new business. Stocks of purchases also increased, though the rate of inventory building moderated to the weakest in nearly a year.
On the price front, both salaries and purchasing costs increased in November. As a result, total input costs continued to rise, extending the current sequence which has run throughout the series history. The overall rate of inflation eased, however, and was muted in comparison with historical data.
Competitive pressures meant that Saudi Arabia’s non-oil private sector firms were unable to pass on higher costs to clients. Average tariffs fell in November, having risen in five of the previous six months. The intensity of price competition had reportedly led some companies to lower their charges in the latest period. – TradeArabia News Service
UAE, Saudi see rebound in non-oil business growth
Khatija Haque
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