RIYADH: Growth in the UAE's non-oil private sector remained stable in July but recorded the slowest improvement in nearly three years, an economic indicator showed.
According to S&P's global purchasing managers' index, the Emirates' PMI fell to 53.7 in July from 54.6 in the previous month as competitive conditions, rising price pressures and capacity congestion weighed on performance.
In July, the index was also below its long-term average of 54.4, but remained well above the expansion mark of 50.
David Owen, chief economist at S&P Global Market Intelligence, said: “The decline in the UAE PMI is another signal that non-oil growth is on the decline in 2024.”
He added: “Business capacity remained one of the biggest challenges facing the sector, as demonstrated by a further sharp increase in backlogs as companies struggled to resolve supply and administration issues.”
In March, UAE Economy Minister Abdulla bin Touq said the Emirates' economy was expected to grow by 5 percent this year, thanks to robust expansion in the non-oil sector and a rise in foreign direct investment.
The minister also said that the UAE's non-oil economy currently accounts for 73 percent of the country's gross domestic product.
According to the S&P Global report, price inflation continued to accelerate in July, with companies experiencing the sharpest increase in input costs in exactly two years.
The finance agency said higher input prices were again partially passed on to customers in July, as output fees rose for the third consecutive month.
The PMI survey showed that business activity continued to increase in July as companies reported rising orders, ongoing projects and improved supply chain conditions.
However, this expansion rate declined for the third month in a row and fell to its lowest level in the last three years.
According to S&P Global, demand conditions in the UAE's non-oil private sector remained favorable and sales rose strongly. However, due to strong competition, some companies reported a decline in orders.
The report also highlighted that the UAE's non-oil companies attracted international interest in July, with their exports recording the second fastest growth in nine months.
Amid fears that customers might switch to competitors, survey reports indicated that non-oil companies often take on more orders than they can handle, S&P Global added.
According to the survey, selling prices rose again in July, reaching a record high of more than six years for the second month in a row. Retailers' delivery times also showed signs of improvement.
“Although delivery times are improving and purchases are increasing, companies have been forced to dip into their inventory levels to address some of these issues. If inventories shrink significantly, this could have a negative impact on growth,” Owen said.
Survey respondents were also optimistic about the future growth of non-oil companies 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 growing solidly and could be strengthened as companies begin to manage their workloads,” Owen said, adding: “Businesses are generally optimistic about this, their confidence in the year ahead remains strong, while at the same time hiring continues to increase staff capacity.”
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.
The report said the weaker recovery was due to weak order books in Dubai's non-oil private sector, which were partly dampened by competitive conditions.
Egypt is approaching growth area
In another report, S&P Global said Egypt recorded a PMI of 49.7 in July, the second highest in nearly three years, but slightly lower than the 49.9 recorded in June.
The U.S.-based agency said Egypt's non-oil economy was near the border between growth and contraction in July, with production and new orders declining only slightly.
According to the PMI survey, employment rose in July while production expectations recovered slightly.
“Egypt's non-oil economy still appears to be expanding, with the PMI for July just below the 50s,” Owen said. “While some firms pointed to a turnaround in the economic situation, particularly due to rising export demand, market conditions elsewhere were described as weak.”
According to S&P Global, price pressures among Egyptian non-oil companies remained low in July compared to recent years, but showed early signs of worsening as input costs rose at the fastest rate since March.
“Inflationary pressures on businesses largely followed the trend seen in the second quarter, which was subdued compared to the elevated rates seen in recent years,” Owen said.
“However, a slight increase in input cost inflation in July could cause concern among some businesses as prices may pick up again and constrain business activity,” he added.
At the start of the third quarter, non-oil companies in Egypt reported a slight but sustained decline in activity levels, reflecting slowing sales and price pressures. Although this decline accelerated slightly from June onwards, it was the second weakest in nearly three years.
The report added that nearly nine percent of companies surveyed reported a decline in sales, while seven percent noted an increase.
On a positive note, the number of export orders increased for the third consecutive month in July, reflecting increased demand for Egyptian non-oil goods in foreign markets.
July also saw a slight increase in job creation at Egyptian non-oil companies, reversing a slight decline seen in June as companies hoped that the drop in sales would be short-lived and conditions would improve.
Kuwait's non-oil private sector remains buoyant
S&P Global said Kuwait's non-oil private sector had a positive start to the second half of the year due to an increase in new orders.
Kuwait’s PMI was 51.5 in July, largely unchanged from 51.6 in June.
“As has been the case for some time, Kuwaiti firms were able to win new business and increase production in July through advertising and competitive pricing,” said Andrew Harker, director of economics at S&P Global Market Intelligence.
He added: “Despite rising input prices and record-high labor costs, discounts were frequently offered.”
According to the report, new orders continued to rise solidly in July, although the pace of growth fell to a ten-month low.
S&P Global added that new orders from existing customers helped Kuwaiti non-oil companies expand their operations again in July.
Harker said it was difficult for companies outside the oil industry to find the right talent to meet the growing demand.
“One of the biggest challenges facing businesses in July was finding qualified staff. Due to these difficulties, the employment situation remained unchanged throughout the month, leading to a further increase in new orders,” said Harker. “Businesses hope that in the coming months they will find it easier to increase employment so they can increase production and manage workloads.”
According to the survey, non-oil companies in Kuwait remain confident that production will increase next year, even though sentiment has fallen to its lowest level since February.
