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Tue 5 Apr 2016 01:40 PM

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UAE private sector growth in Q1 slows to four-year low

Improvement in business conditions is supported by higher output and new work during March

UAE private sector growth in Q1 slows to four-year low

Growth in the UAE's non-oil private sector during the first quarter of 2016 was the weakest for four years, according to a new business survey.

This was despite March data from the Emirates NBD UAE Purchasing Managers’ Index (PMI) signalling a second consecutive pick-up in the rate of improvement in the health of the private sector.

Business conditions improved at the strongest pace in four months, mainly driven by sharper rises in output and new orders. Notably, total new work increased more quickly in spite of a renewed fall in exports.

Both employment and input stocks remained in growth territory, but the respective rates of expansion eased slightly. On the price front, input costs rose only modestly, meaning that companies were able to reduce their tariffs amid greater competition. 

Adjusted for seasonal factors, the headline Emirates NBD UAE PMI climbed to a four-month high of 54.5 in March.

Up from 53.1 in February, the latest figure indicated that growth had continued to rebound from January’s near-four year low. That said, the improvement in business conditions across the first quarter (53.4) was the weakest on average since Q1 2012.

Khatija Haque, head of MENA Research at Emirates NBD, said: “While the improvement in the Emirates NBD UAE PMI in March is encouraging, the average PMI for Q1 2016 signals a further slowdown in the non-oil private sector of the UAE at the start of this year. 

"Nevertheless, the solid growth in output and new orders in the first quarter suggests that domestic demand is holding up well despite the headwinds of a strong USD and low oil prices.” 

Growth of the non-oil private sector as a whole was supported by higher output and new work during March. In particular, output rose at the quickest rate since last September, helped by enhanced marketing efforts and incoming new projects.

New business also increased at a faster pace. However, the expansion was subdued relative to the long-run trend, with data highlighting weakness in international demand. New export orders fell for the first time in six months, albeit only marginally.

Employment in the UAE’s non-oil private sector increased further in March, extending the current sequence of job creation to 51 months. The rate of hiring eased since February, however, and was muted in the context of historical data. Meanwhile, backlogs of work rose only fractionally, with some companies suggesting that they had become more efficient in production.

Prices data pointed to subdued cost pressures in March. The rate of input price inflation was only modest overall, despite accelerating to the fastest so far in 2016. The rise in total input costs was restricted by a marginal drop in salaries – the first recorded since December 2011.

Subsequently, businesses were able to cut their tariffs for the fifth straight month. Increased competition was cited as the main reason behind the fall.