UAE business activity growth slumps to 15-month low

August data shows job creation slowed, new order growth dropped to lowest pace in a year
UAE business activity growth slumps to 15-month low
Weak PMIs from the euro zone, China, India and Britain echoed surveys last week that showed world factory output slowed in August (Getty Images)
By Reuters
Wed 07 Sep 2011 03:47 PM

Growth
in private sector business activity in the United Arab Emirates plunged to a
15-month low in August as output stagnated and new order growth dropped to the
lowest pace in a year, a purchasing managers' survey showed on Wednesday.

The
HSBC UAE Purchasing Managers' Index (PMI), which measures the performance of
the OPEC member's manufacturing and services sectors, dropped to 50.9 points in
August, after easing for three consecutive months in a row to 53.3 points in
July, the survey of 400 private sector firms showed.

The
PMI had reached 57.5 points in April, which was the highest level since the
series began in August 2009, with 50 marking the point which separates growth
from contraction.

"It's
a disappointing reading that strongly suggests the pick up in growth apparent
in the first half of the year has lost speed," said Simon Williams, chief
economist for MENA at HSBC.

New
orders for UAE non-oil private sector companies hit a one-year low of 53.5
points in August.

This
was reflected by firms' output levels, which were unchanged on the month for
the first time since the series began in August 2009, the survey showed.

The
global financial crisis and a local debt crisis led to the shelving of projects
worth billions of dollars in Dubai, a trade and financial hub of the UAE,
dragging down the economy.

Concerns
about indebtedness of Dubai's state companies have eased after
government-linked Dubai World sealed a deal to restructure almost $25bn of debt
a year ago, although uncertainty remains over the emirate's ability to repay
some $30bn worth of debt due over the next two years.

"The
marked drop in the new orders index, as well as the current output index,
indicates that the deteriorating global environment is taking its toll,"
Williams said.

Global
growth in services came to a virtual standstill last month as new business all
but dried up, adding to fears that the world economy is facing another
recession.

Weak
PMIs from the euro zone, China, India and Britain echoed surveys last week that
showed world factory output slowed in August.

Job
creation in the UAE has cooled sharply since a series' record in April, but
non-oil private sector companies continued to hire new staff in August citing
business expansions and expectations of stronger market demand.

UAE
non-oil private sector selling prices fell in August after eight successive
months of output price inflation, while input cost pressures increased
slightly, the survey showed.

"That
output prices fell in August even though input costs continued to rise may be
welcomed by consumers but underscores the difficulty firms face protecting
their margins in an economy that still has substantial excess capacity,"
Williams said.

Annual
consumer price inflation in the UAE, the second largest Arab economy, eased to
a three-month low of 1.3 percent in July.

The
UAE, the world's No.4 oil exporter, became an investor safe haven over past
months with protests sweeping through much of the Arab world, including nearby
Oman, Bahrain and Yemen.

Analysts
polled by Reuters in June expect the UAE economy to expand by 3.7 percent this
year after a 1.4 percent rise in 2010.

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