Bank survey shows economy on track despite PMI drop
Private sector business activity in the UAE slowed down a little in May from a series high achieved in the previous month as new orders and output decelerated, a purchasing managers' survey showed on Sunday.
The HSBC UAE Purchasing Managers' Index (PMI) fell to 56 points in May, down marginally from April's survey record high of 57.5 points. Nevertheless, the latest reading points to another marked improvement in the health of the UAE non-oil private sector economy, the bank said in its report.
The PMI measures the performance of the OPEC member's manufacturing and services sectors showed that new order takings rose sharply during the latest survey period, albeit to a lesser extent than in April. A PMI reading above 50 points indicates the economy is expanding. May was the first month-on-month PMI decline since November last year.
Staff costs at firms monitored by the bank continued to rise in May, and at a series record pace, it said. Companies monitored by the survey stated that wages and salaries were increased to compensate workers for rising living costs.
Data compiled from monthly replies to questionnaires sent to purchasing executives in approximately 400 private sector companies suggests that the domestic market remained the key driver of total new business expansion, despite a pick-up in new export order growth. Panellists commented on better operating conditions, competitive pricing and successful promotional activities, HSBC UAE said in a statement.
"There is still a raft of problems for the UAE economy to work through and the lower PMI print for May is a reality check for those that thought we were rushing back to the strong growth rates of earlier years," said Simon Williams, Chief Economist for Middle East & North Africa at HSBC.
"But, it is still a decent reading - the good score for new orders is particularly encouraging - and it adds to my conviction that the UAE's recovery is well underway," he added.
"We continue to look for non-oil growth of around 3 per cent this year, with the economies of both Dubai and Abu Dhabi expanding year on year," Williams reckoned.
"As a result of further gains in new work, as well as investments in new equipment, UAE non-oil private sector output rose considerably in May. However, the rate of increase slowed from April's series record pace," HSBC said.
Efficient order management and timely goods dispatch led to a modest depletion of backlogs at UAE non-oil private sector firms in May. This followed a slight accumulation in April, the bank explained.
According to the report, UAE firms raised buying activity, built up input stocks and took on extra staff in May to accommodate greater business requirements,. Purchasing increased at a series record pace, supporting another robust rise in inventories. Job creation slowed on the month, but remained solid.
Average vendor performance continued to improve in May, despite stronger demand for inputs. Firms attributed this to prompt payment for goods and efficient service at suppliers.
Purchase price inflation moderated in May, but remained sharp with 26 per cent of the bank's panellists registering a rise in purchasing costs. Anecdotal evidence suggests that greater fuel, raw material and freight costs drove the latest increase.
UAE non-oil private sector firms shared the burden of rising input costs with their customers again in May. Prices charged for goods and services increased at a marked rate that was little-changed from April's series record pace.
© Emirates 24|7 2011
