UAE's May PMI slipped marginally as private sector output rose

Dubai: The UAE's purchasing managers' index (PMI) for May signalled a further improvement in operating conditions at the UAE's non-oil producing private sector companies. The headline index fell slightly from April's record high of 58.3 to 57.3.

The index, compiled by HSBC and Markit Economics is a composite indicator of UAE's non-oil economy based on data compiled from purchasing executives in approximately 400 private sector companies in the UAE.

The UAE's non-oil private sector companies reported further sharp increases in output and new orders, with the respective rates of growth easing only slightly since April. Meanwhile, employment levels continued to rise at a robust pace and selling prices fell for the second month in a row.

"Output and new orders both continue to grow well and the labour market is in rude health. These would be good numbers at the best of times - given the weakness affecting so many other emerging markets, the data is better still," said Simon Williams, Chief Economist for Middle East & North Africa at HSBC.

The non-oil private sector output in the UAE increased further in May. The pace of expansion was the second-quickest on record, with more than one-in-four survey participants reporting growth. New orders also rose at a sharp, albeit weaker rate during May.

The rate of growth in new work eased slightly to a nine-month low, but was still amongst the highest in the series history. Growth in new export business also remained robust with surveyed companies attributing the expansion to a pick-up in economic activity in neighbouring countries.

The rate of job creation was sharp and amongst the highest in the series history. Meanwhile, backlogs of work accumulated during May, signalling pressure on operating capacity in the UAE's non-oil producing private sector.

Overall input prices continued to increase in May and the rate of cost inflation picked up marginally since April as increased living costs was one of the reasons for higher salary bills.

Despite higher input costs, the non-oil producing private sector firms lowered their selling prices for the second month running in May.

The PMI data suggests that consumer inflationary pressures (outside of housing) remained contained in May. However, the UAE's non-oil economy may be reaching supply constraints, with the backlog of works growing at a relatively fast pace.

"At some point, the strong increase in demand coupled with rising input costs and supply constraints should feed through to consumer prices, and we retain our view that inflation in the UAE will accelerate to an average 3 per cent this year from just 1.1 per cent in 2013," said Khatija Haque, head of Mena Research at Emirates NBD.

Nearly 11 per cent of firms surveyed indicated higher levels of outstanding business in May, compared with April. Overall purchasing activity increased further in May, with the rate of growth in input buying the joint-second highest in the 58-month survey history.


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