A measure of the UAE’s non-oil private business growth fell close to a 22-month low last month amid increasing signs that the tumble in hydrocarbons prices over the past year is starting to take its toll on the wider economy.
The UAE purchasing managers’ index (PMI) fell to 54.7 last month from 56.4 in May, said Emirates NBD. The Dubai-based bank sponsors the monthly survey of business conditions in the UAE’s non-oil private sector by Markit, a financial information services company.
Khatija Haque, the head of Middle East and Africa research at Emirates NBD, said the decline could be because of the lead-up to Ramadan, when production typically slows down.
“Although the June PMI data was the softest in two years, it signals solid growth in the non-oil private sector,” she said.
“Furthermore, it is difficult to determine whether the softening will continue into the third quarter, particularly when bearing in mind the Islamic calendar.
“We attribute some of the slowdown to the start of Ramadan, and we would expect to get a clearer picture of underlying growth momentum later in the year.”
The survey found that production grew sharply weaker as new orders increased at the slowest pace since April 2012.
The bank did not give a breakdown of the PMI findings, but readings above 50 indicate an overall improvement in business conditions.
“A more challenging environment for Dubai’s tourism and retail sectors is affecting an important segment of its non-oil sector,” said Shady Shaher, a Dubai-based economist at Standard Chartered. “However, the 2015 outlook for Dubai’s trade sector dynamics is improving. As the hub for 55 per cent of the region’s trade, Dubai benefits from ongoing trade flows as GCC countries continue to spend on their economies.”
The UAE economy is estimated to have grown more than 4 per cent last year even though oil prices fell more than 50 per cent in the second half of the year.
The federal government relies on oil revenues to fund more than 60 per cent of its budget.
As a result of the oil slump, many economists – including those at HSBC, Standard Chartered and the IMF – have lowered their growth forecasts for Arabian Gulf countries this year.
The IMF cut its estimate of the UAE’s GDP growth this year to 3.2 per cent. The country’s economy grew more than 4 per cent last year.
In Saudi Arabia, the non-oil private sector fell to a record low last month to 56.1 from 57 in May. But Ms Haque said the sector’s economic growth remained robust.
The IMF predicts that economic growth in Saudi Arabia would slow to 2.7 per cent next year from 3 per cent this year. Riyadh relies on oil sales to fund 90 per cent of its budget.
In December, the kingdom pledged to maintain spending this year. After the plunge in oil prices, Saudi officials said the government’s full-year revenues were projected to fall to 715 billion Saudi riyals (Dh699.3bn) this year, from 1.04 trillion riyals last year. Riyadh estimates this year’s expenditure at about 860bn riyals.
Elsewhere in Egypt, the country’s PMI improved the most since December. The index rose to 50.2 last month from 49.9 in May. It is the first time that the PMI has risen above 50 since December.
“June’s PMI reading fits well with our view that the Egyptian economy should gradually pick up momentum heading into the second half of 2015,” said Ms Haque.