United Arab Emirates: PMI softens again in August as employment levels fall
September 4, 2018
The Emirates NBD Purchasing Managers’ Index (PMI) fell to 55.0 in August, from 55.8 in July. Nonetheless, the index remained firmly above the 50-threshold that separates expansion from contraction in the non-oil producing private sector.
The softer August reading came on the back of a fall of the employment sub-index, which fell under the 50-point threshold for the first time in the survey’s near ten-year history, as well as a fall in input inventories and a softening of new order growth. Nevertheless, since order growth remained robust—thanks notably to resilient external demand from GCC partners—backlogs of work increased at a faster clip than in July.
The fall of the employment index is remarkable given that output growth remained very strong, and even accelerated compared to July. According to Khatija Haque, head of MENA research at Emirates NBD, this is in good part due to the downward pressures on margins manufacturers have been facing since the introduction of a 5% VAT in January this year: “while activity in the non-oil private sector is expanding at a similar rate to last year, margin pressures on firms mean that this growth in new work and output is not translating to job creation or higher wages. As a result, we retain our view that private consumption is unlikely to contribute significantly to GDP growth this year, with government spending and investment, and net exports likely to be the engines of growth.
On the price front, input cost inflation inched up slightly in August but remained modest. Output prices however continued to decrease for the fourth consecutive month, underlining the ongoing pressures on firms’ margins. Meanwhile, purchasing activity softened in August, with input inventory declining for the first time since April 2012.
Author: Joffrey Simonet, Economist