UAE firms continued to reduce employment numbers in May, although the latest fall was the softest since February, IHS Markit said in its Purchasing Managers' Index report.
Businesses reported that excess capacity remained, whilst rising cost pressures led them to make further adjustments to salaries. As a result, staffing costs fell solidly and at the quickest pace in the survey's history, it said.
David Owen, Economist at IHS Markit, said: "Input prices have begun to creep up, leading firms to make further cuts to staffing as sales revenues remain low. Businesses also reported a fall in future output sentiment to the joint-lowest ever, illustrating concerns of a drawn-out economic recovery and long-lasting impact on activity."
The seasonally adjusted IHS Markit UAE Purchasing Managers' Index (PMI), which covers manufacturing and services, rose to 46.7 in May from 44.1 in April.
IHS Markit's outlook towards the next 12 months of activity worsened still in May, with sentiment reaching the joint-lowest since the series began in April 2012.
The UAE's non-oil private sector contracted for the fifth consecutive month in May, although at a slower pace than in April and March as COVID-19 lockdown measures were eased.
While output and new orders contracted at softer rates, firms highlighted increasing concerns that the pandemic will have a long-term impact on demand.
The IHS Markit UAE PMI is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies.
(Writing by Seban Scaria, editing by Daniel Luiz)
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