UAE, Saudi Arabia's Growth of Non-Oil Private Sector Rebounds from Q1 Low: Report

Published May 4th, 2017 - 10:17 GMT
Business conditions in the non-oil private sectors of the UAE and Saudi Arabia continued to improve at the start of the second quarter, with rates of expansion in new work and business activity gathering pace, a report said.
 (AFP/ File)
Business conditions in the non-oil private sectors of the UAE and Saudi Arabia continued to improve at the start of the second quarter, with rates of expansion in new work and business activity gathering pace, a report said. (AFP/ File)

Business conditions in the non-oil private sectors of the UAE and Saudi Arabia continued to improve at the start of the second quarter, with rates of expansion in new work and business activity gathering pace, a report said.


Sharp increases in output and new orders were a key factor behind the overall upturn, as was a survey-record increase in pre-production inventories. Meanwhile, firms increased their payroll numbers at a modest pace. On the price front, firms offered discounts to attract customers despite reports of higher cost burdens.

Read more: Economic Diversification Will Keep UAE Afloat As Oil Prices Plummet: Experts

The survey, sponsored by Emirates NBD and produced by IHS Markit, a world leader in critical information and analytics, contains original data collected from a monthly survey of business conditions in the non-oil private sector.

The headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – posted at 56.1 in April, from 56.2 at the end of the first quarter.

This signalled a sharp improvement in the health of the sector, with the PMI close to March’s 19-month high. Notably, the headline index remained stronger than the series long-run average of 54.5.

Tim Fox, head of Research and chief economist at Emirates NBD, said: “The UAE PMI remained little changed in April from March, at both a headline level and in terms of the detail. The PMI shows that while overall activity was firm going into the second quarter, companies are still facing significant challenges as job creation remains subdued and pricing power is limited.”

Key findings:
•    PMI little-changed from March’s 19-month high
•    Sharp, but slower, rates of expansion of output and new orders
•    Survey-record rise in stocks of purchases

Underpinning growth of the non-oil private sector as a whole was a sharp expansion of output. The rate of growth softened since March, but was the second-sharpest in 26 months. Panellists commented on new projects, stronger underlying demand and favourable economic conditions.

Meanwhile, new order book volumes rose at a sharp pace, despite growth easing to a four-month low. Marketing initiatives, good quality products and construction work contributed to further improvements in market demand, according to respondents. New export orders rose for the fifth month in succession, albeit at a much slower pace than that seen for total new orders.

Firms increased their payroll numbers for the twelfth month in a row, in response to increased output requirements. However, the rate of job creation remained modest and below the series average. As a result, backlogs accumulated for the fourth month in succession.

Read more: Is $26.7 Billion Enough To Boost Abu Dhabi's Industrial Sector?

Meanwhile, sharp growth of purchasing activity was recorded. As a consequence, the pace of pre-production inventory accumulation climbed to a record high, as panellists continued to build stocks due to projections of further improvements in demand.

Non-oil private sector firms operating in UAE faced divergent price trends at the start of the second quarter. Firms that reported higher cost burdens blamed a general increase in market prices for raw materials and higher demand for inputs. The rate of inflation was solid and only slightly slower than the preceding month. On the other hand, firms reduced output charges at a modest pace, the first fall in three months. There were reports that intensive competition led firms to offer discounts to attract customers.

Saudi Arabia

Firms were encouraged to engage in purchasing activity, which in turn led to the strongest accumulation in stocks of purchases in over four-and-a-half years. Despite added pressure on operating capacity, the rate of job creation remained only marginal overall. Meanwhile, input cost inflation climbed to an eight-month high, but selling prices rose only fractionally amid competitive pressures.

Commenting on the Emirates NBD Saudi Arabia PMI, Fox said: “This was another overall strong reading of Saudi Arabia’s non-oil private sector activity, with output and new orders growth both very firm in April. However, below the surface it remains clear that companies are having to work harder to generate these gains, with little capacity to increase employment and profit margins continuing to be squeezed.”

Key findings:
•    Sharper expansions in new orders and output
•    Rate of inventory accumulation at 55-month high
•    New export orders fall for first time in ten months

The Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) rose from 56.4 in March to 56.5 in April. The latest reading was broadly similar to the average recorded in the opening quarter of 2017 and consistent with a robust improvement in business conditions across the sector. However, the PMI posted below its long-run series average of 58.3.

Underpinning the improvement in the sector was a sharper expansion in business activity. The rate of growth accelerated since March and was in line with its long-run trend. Panellists commented on stronger underlying demand and favourable economic conditions.

New business inflows rose sharply and at a faster pace than in the prior month. Anecdotal evidence indicated that firms’ sales and marketing efforts had supported the upturn in domestic demand. There were also mentions of new construction and development activities.

On the other hand, new export work declined for the first time in ten months, although the rate of contraction was marginal overall. Non-oil private sector firms in Saudi Arabia faced lower foreign demand and intense competition in external markets, according to respondents.

Read more: Saudi Arabia's Non-Oil Income Doubled In Past Two Years: Deputy Crown Prince

In response to greater output requirements, companies were encouraged to increase their purchasing activity, contributing to a steeper rate of inventory building. Indeed, the rate of inventory accumulation quickened to a 55-month high.

Firms continued to increase payroll numbers during April, but the rate of job creation remained marginal. Concurrently, outstanding business increased for the sixth consecutive month.

Latest data pointed to diverging price trends. Total input costs rose at the fastest pace in eight months. Inflationary pressures stemmed from a general increase in raw material prices due to increased demand. On the other hand, the rate of charge inflation eased to the weakest in the current six-month sequence of increases and was only fractional. 

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