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Slowdown grips UAE’s non-oil sector

Business conditions in the country improving at the weakest rate since March 2012

Showing no hope of turning around soon, the downturn in the UAE’s non-oil sector continued at the start of the new year after it concluded in 2015 the worst quarter in the last few years.

The Emirates NBD Purchasing Managers Index was at its lowest level in 46 months during January amid low oil prices and weak consumer and business sentiment.

Bleak business outlook

The PMI survey, produced by Markit, showed that the business conditions in the country were improving at the weakest rate since March 2012.

The January PMI, which fell from 53.3 in December to 52.7, was dragged down by subdued rise in new work, which hovers at near-stagnation level.

Weak demand, slowing exports

The growth of new work eased to the least marked since November 2010 due to weak demand and slowing output.

The uncertain global economic outlook also cast shadow over the country’s non-oil economy as exports declined significantly amid slowing international demand.

The survey showed that rate of expansion was much weaker than the long-run average.

No new hires?

Employment also eased as the rate of hiring was the slowest in almost four years at the start of 2016. Nearly all the monitored companies (95 per cent) noted no change since December.

Meanwhile, the survey found that input buying rose at a slightly faster pace, contrasting with the slowdown seen across the sector as a whole.

Total cost pressures also eased in January, alleviated by weaker rises in both salaries and purchasing costs.

“Anecdotal evidence suggested that the rate of purchase price inflation had slowed as a result of greater competition among suppliers,” the report stated.

On the price front, tariffs dropped further as prices charged by businesses fell for the third consecutive month. The latest drop was the fastest since November 2013.

Some firms reduced their tariffs in an effort to boost sales, while others did so in line with growing competition, the survey added.

But there’s hope

“The slowdown in non-oil sector growth in the UAE over the last few months is in line with our expectations, as uncertainty about the economic outlook and low oil prices weigh on consumer and business sentiment, and as the strong USD continues to impact demand from emerging markets in particular,” says Khatija Haque, Head of MENA Research at Emirates NBD.

“However, we expect the non-oil sectors to contribute positively to overall growth in the UAE this year.”