RIYADH: The UAE's non-oil private sector growth held steady in July, but recorded the slowest improvement in nearly three years, according to an economic tracker.
Emirates' PMI fell to 53.7 in July, according to the S&P Global Purchasing Managers' Index, as competition, increased pricing pressure and excess capacity weighed on performance.
In July, the index remained below its long-term average of 54.4, but well above the 50 expansion level.
“The decline in the UAE PMI is another sign that non-oil growth is on a downward trend in 2024,” said David Owen, chief economist at S&P Global Market Intelligence.
“Business capacity remains one of the key challenges facing the sector, as evidenced by the sharp increase in backlogs again as companies struggle to address supply and administrative issues,” he added.
In March, UAE Minister of Economy Abdullah bin Tok said the emirate's economy was expected to grow by 5% this year, driven by robust growth in the non-oil sector and increased foreign direct investment.
The minister also said the UAE's non-oil economy currently accounts for 73 per cent of the country's gross domestic product.
Price inflation accelerated further in July, with companies experiencing the fastest rise in input costs in exactly two years, according to an S&P Global report.
The financial institution said that higher input prices were again being passed on to some customers as production costs increased for the third consecutive month in July.
The PMI survey showed that business activity levels rose further in July as companies cited increased job creation, ongoing projects and improving supply chain conditions.
However, the expansion rate has eased for three consecutive months and is at its lowest level in three years.
S&P Global said demand conditions in the UAE's non-oil private sector remain healthy, with sales increasing sharply. However, fierce competition has led to a decline in new orders for some companies.
The report also highlighted that the UAE's non-oil businesses attracted international demand in July, with exports growing at the second fastest pace in nine months.
S&P Global added that research reports show non-oil companies often take on more work than they can handle due to concerns that customers will switch to competitors.
The survey found that July sales prices rose again, reaching a second six-year high, while supplier delivery times also showed signs of improvement.
“While delivery times are improving and purchases are increasing, companies have had to reduce inventory to address some of these issues, and if inventory becomes significantly depleted, it could be a headwind to growth,” Owen said.
Survey respondents remained optimistic about the future growth of the UAE's non-oil businesses over the next 12 months, but their confidence fell to its weakest level since January.
“Overall, the PMI suggests that non-oil sector expansion is robust and could strengthen as companies start to process their workload,” Owen said. “Companies are broadly optimistic about this, remain confident about the coming year, and hiring to increase headcount continues,” he added.
In the same report, S&P Global said Dubai's PMI fell to 52.9 in July from 54.3 in June, its lowest level in two and a half years.
According to the report, the slowdown was due in part to a decline in orders from Dubai's non-oil private sector, which it attributed to a slowdown in competitive conditions.
Egypt, Approaching Growth Areas
In another report, S&P Global said Egypt recorded a PMI of 49.7 in July, its second-highest reading in nearly three years but slightly below June's 49.9.
The U.S. agency said Egypt's non-oil economy remained close to the line between growth and contraction in July, with production and new business falling to negligible levels.
The PMI survey added that employment increased in July and output expectations also recovered slightly.
“Egypt’s non-oil economy still appears to be at the peak of its expansion, with the July PMI just below 50,” Owen said. “Some firms noted that economic conditions have improved, particularly due to increased export demand, while others noted that market conditions are weak.”
According to S&P Global, price pressures for Egypt's non-oil companies in July remained at a lower level than in previous years, but showed signs of intensifying as input costs rose at the steepest pace since March.
“Inflationary pressures on businesses broadly followed the trend seen in the second quarter and were lower than the high rates seen in recent years,” Owen said.
“However, if input cost inflation picks up slightly in July, some companies may be concerned that prices will rise again and business activity will be restricted,” he added.
Egypt’s non-oil businesses reported a slight but sustained decline in activity levels in early Q3, driven by lower sales and price pressures. The pace of decline accelerated slightly from June, but was the second weakest in nearly three years.
The report found that about 9 percent of the companies surveyed reported a decline in sales, while 7 percent reported an increase.
On the positive side, new export orders increased for the third consecutive month in July as demand for Egypt's non-oil products increased in foreign markets.
Job creation in Egypt's non-oil sector also rose slightly in July, reversing a slight decline in June, as companies expected the drop in sales to be temporary and conditions to improve.
Kuwait's non-oil private sector maintains momentum.
S&P Global said Kuwait's non-oil private sector got off to a positive start to the second half of the year, led by increased new orders.
Kuwait's July PMI was 51.5, largely unchanged from June's 51.6.
“As has been the case in recent years, Kuwaiti companies were able to secure new business and expand production during July, leveraging advertising and competitive pricing,” said Andrew Harker, economic director at S&P Global Market Intelligence.
“Discounts were often offered despite rising input prices, including record-breaking increases in labor costs,” he added.
New orders still grew at a solid pace in July, despite growth falling to its lowest level in 10 months, the report said.
S&P Global added that new orders from regular customers in July helped Kuwait's non-oil companies expand their business activities again.
Hacker said non-oil companies are struggling to find the right talent to meet growing demand.
“The main challenge for companies in July was finding the right skilled workers, and that difficulty led to flat hiring during the month, which in turn led to further backlogs,” Harker said. “Companies will be hoping to find it easier to hire more in the coming months, so they can ramp up production and continue to handle the workload.”
A survey found that Kuwait's non-oil companies remain confident that production will increase next year, but expectations have fallen to their lowest level since February.
