RIYADH: Growth in the United Arab Emirates’ non-oil private sector remained steady in July, but posted the slowest improvement in nearly three years, an economic indicator showed.
According to the S&P Global Purchasing Managers' Index, the Emirates' PMI fell to 53.7 in July from 54.6 the previous month, as competitive conditions, rising pricing pressures and capacity overruns weighed on performance.
In July, the index also stood below its long-term average of 54.4, but remained firmly above the expansion threshold of 50.
David Owen, chief economist at S&P Global Market Intelligence, said: “The decline in the UAE's PMI is a further sign that non-oil growth is on the decline in 2024.”
He added: “Business capacity remained a major challenge facing the sector, as indicated by another sharp increase in backlogs, as companies struggled to resolve administrative and supply issues.”
In March, UAE Minister of Economy Abdulla bin Touq said the Emirati economy is expected to grow by 5 percent this year, driven by solid expansion in the non-oil sector and increased foreign direct investment.
The minister further said that the UAE's non-oil economy currently accounts for 73 percent of the country's gross domestic product.
According to a report by S&P Global, price inflation accelerated further in July, with companies reporting the fastest increase in input costs in exactly two years.
The financial agency revealed that higher input prices were once again partly passed on to customers, as output costs rose for the third consecutive month in July.
The PMI survey revealed that business activity levels increased further in July, as companies commented on the growing influx of new work, ongoing projects and improving supply chain conditions.
However, this rate of expansion slowed for the third consecutive month and was the lowest recorded in the last three years.
S&P Global said demand conditions in the UAE’s non-oil private sector remained favorable, with sales rising sharply. However, some companies saw a decline in new order volumes due to stiff competition.
The report also highlighted that the UAE’s non-oil activities attracted international interest in July, with exports growing at the second fastest pace in nine months.
Because of fears that customers might switch to competitors, survey reports have indicated that non-oil companies often take on more work than they can handle, S&P Global added.
The survey found that selling prices rose again in July, hitting a new record high for the second month in six years, while sellers' delivery times showed signs of improvement.
“While delivery times are improving and purchases are increasing, companies have been forced to dip into their inventories to try to resolve some of these issues, which could be a drag on growth if inventories are significantly depleted,” Owen said.
Survey respondents also expressed optimism about future growth in non-oil activity in the UAE over the next 12 months, although their confidence fell to its lowest level since January.
“Overall, the PMI suggests that the non-oil sector is expanding solidly and could strengthen if companies start to manage their workloads,” Owen said, adding: “Companies are generally optimistic about this, with confidence in the year ahead remaining strong, while hiring has also continued in an effort to increase staffing capacity.”
In the same report, S&P Global said Dubai's PMI fell to its lowest level in two-and-a-half years in July, falling to 52.9 from 54.3 in June.
The report said the weaker recovery was due to low orders in Dubai's private non-oil sector, partly dampened by competitive conditions.
Egypt nears growth
In another report, S&P Global revealed that Egypt recorded a PMI of 49.7 in July, the second highest in nearly three years, but slightly lower than June's 49.9.
The U.S.-based agency said Egypt's non-oil economy remained close to the dividing line between growth and contraction in July, with output and new business declining at marginal rates.
The PMI survey added that employment rose in July, while manufacturing expectations picked up slightly.
“Egypt's non-oil economy still appears to be on the brink of expansion, with the July PMI registering just below the 50 mark,” Owen said. “While some companies pointed to a turnaround in economic conditions, particularly through rising export demand, market conditions were cited as weak elsewhere.”
According to S&P Global, price pressure among Egyptian non-oil companies remained low in July compared to the past two years, but showed tentative signs of intensification as input costs rose at the fastest pace since March.
“Inflationary pressures on businesses have largely followed the trend seen in the second quarter, which has been muted from the elevated rates of recent years,” Owen said.
“However, a slight increase in input cost inflation in July may worry some companies about the risk of a renewed price increase and a consequent restriction of business activity,” he added.
Egypt’s non-oil businesses reported a smaller but persistent decline in activity levels early in the third quarter, driven by weakening sales and price pressures. While this pace of decline has accelerated slightly since June, it was the second weakest in nearly three years.
The report adds that nearly 9 percent of companies surveyed reported a decline in sales, while 7 percent reported an expansion.
On a positive note, new export orders increased for the third consecutive month in July, driven by improved demand for Egyptian non-oil goods from overseas markets.
Job creation at Egyptian non-oil firms also rose slightly in July, reversing a slight decline in June, as firms hoped the sales slump would be brief and conditions would improve.
Kuwait's Non-Oil Private Sector Maintains Momentum
S&P Global revealed that Kuwait's non-oil private sector has started the second half of the year positively, driven by rising new orders.
In July, Kuwait's PMI stood at 51.5, essentially unchanged from 51.6 in June.
“As has been the case for some time now, companies in Kuwait were able to use advertising and competitive pricing to secure new business and expand production during July,” said Andrew Harker, economics director at S&P Global Market Intelligence.
He added: “The discounts were often offered despite rising input prices, including a record increase in staff costs.”
According to the report, new orders continued to rise at a healthy pace in July, even though the growth rate hit a 10-month low.
S&P Global added that new orders from regular customers helped Kuwaiti non-oil companies expand trading activity again in July.
Harker said non-oil companies have struggled to find the right talent to meet growing demand.
“A key challenge for businesses in July was finding adequately qualified staff, and these challenges meant that employment was flat during the month, resulting in a further build-up of backlogs,” Harker said. “Companies are hoping to find it easier to increase employment in the months ahead so they can expand production and keep workloads under control.”
The survey found that Kuwait's non-oil companies remain confident that production will increase over the next year, although sentiment fell to its lowest level since February.
