Dubai: The Emirates NBD UAE Purchasing Managers’ Index, a composite indicator of operating conditions in the non-oil private sector of economy, fell to 55 in August, down from 55.8 in July.
The employment index of the PMI survey fell to 49 in August signalling a modest average decline in jobs last month, the first time this has happened since the series began in August 2009.
The softness in employment, which has been evident to some extent since 2016 but appears to have slowed even further this year, is surprising in the context of strong reported growth in output and new orders in the private sector over the same period.”
- Khatija Haque | Head of Mena Research at Emirates NBD
Slow hiring in the economy was evident as 7.5 per cent of firms surveyed indicated lower employment in August compared with July, while 3.9 per cent of firms reported increased hiring. Some firms who reported job shedding last month linked this to efficiency initiatives.
“The softness in employment, which has been evident to some extent since 2016 but appears to have slowed even further this year, is surprising in the context of strong reported growth in output and new orders in the private sector over the same period,” said Khatija Haque, head of Mena Research at Emirates NBD.
Job growth in the UAE over the last couple of years, as measured by the PMI has been modest with the employment index averaging 51.2 in both 2016 and 2017. This year has been even softer, with the employment index averaging just 50.5 year-to-date. “This has been surprising in the context of strong reported growth in output and new orders in the private sector over the same period. Indeed, the output index rose to 63.1 in August, while new work increased at a strong [although slower] rate last month, with this index easing to 57.1,” Haque said.
Despite new order growth easing in the latest survey, output growth accelerated and remained sharp overall. Many firms linked higher output requirements to elevated backlogs of work and ongoing projects surrounding Expo 2020. Output growth has been recorded continuously since February 2010.
Continuing the sequence seen since April, new export orders rose once again during August. The rate of growth was marked overall and reflected stronger inflows of new business from neighbouring GCC countries.
Stocks of pre-production inventories, which accounts for 10 per cent of the headline PMI, also declined slightly in August, the first time this component has slipped under the neutral 50 level since April 2012.
On the price front, the vast majority of companies in the UAE’s non-oil private sector reported unchanged cost pressures since one month ago. Meanwhile, some firms reported price discounting, which was linked to promotional activity.
“The August PMI survey suggests that while activity in the non-oil private sector is expanding at a similar rate to last year, margin pressures on firms mean that this growth in new work and output is not translating to job creation or higher wages. As a result, we retain our view that private consumption is unlikely to contribute significantly to GDP growth this year, with government spending and investment, and net exports likely to be the engines of growth,” Haque said.