Survey reports say private sector output in the emirate at near-record pace, while those in the kingdom see sluggish order increase, reports Team IFM
Abu Dhabi, June 9: Two separate reports have painted contrasting performance pictures for non-oil producing private sector companies in the United Arab Emirates (UAE) and Saudi Arabia for May. While an HSBC report said output of these firms rose at a near-record rate in the UAE, a Saudi British Bank report said the kingdom saw the slowest rise in new orders since September 2011.
“The UAE’s non-oil producing private sector companies reported further sharp increases in output and new orders, with the respective rates of growth easing only slightly since April,” the HSBC report said.
Meanwhile, it said, employment levels continued to rise at a robust pace and selling prices fell for the second month in a row. May data also signalled “a further marked improvement” in operating conditions at the UAE’s non-oil producing private sector companies.
The headline Purchasing Managers’ Index or PMI – capturing a snapshot of this sector – fell slightly from April’s record high of 58.3 to 57.3, but remained well above the long-run series average of 53.8.
In Saudi Arabia, the headline SABB PMI for May – a monthly report issued by the bank and HSBC –reflected a more subdued economic performance of the non-oil producing private sector companies, taking into account a number of variables including output, orders, prices, stocks and employment.
May’s survey indicated the continued expansion of the Saudi Arabia non-oil producing sector. After accounting for seasonal factors, the headline PMI recorded 57.0, down from 58.5 in April.
It signalled another month of strong growth, but at a rate that matched March’s recent low, SABB said.
ROBUST UAE
Following the trend observed throughout most of the survey history, non-oil private sector output in the UAE increased further in May, the HSBC survey report said. “The pace of output was the second quickest on record, with more than one-in-four respondents reporting growth,” it emphasised.
New orders also rose at a sharp, albeit weaker rate during May, with companies commenting that improving market conditions had boosted demand. 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 marked, with surveyed companies attributing the expansion to a pick-up in economic activity in neighbouring countries.
With output and new orders rising, companies continued to take on additional workers in order to meet higher business requirements. “The rate of job creation was sharp and amongst the highest in the series history,” said Simon Williams, HSBC’s Chief Economist for Middle East and North Africa.
Meanwhile, the survey report added, backlogs of work also 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.
Survey participants told HSBC that increased market demand and higher prices for some raw materials drove purchase costs higher, while increased living costs was one of the reasons for higher salary bills.
Despite higher input costs, the UAE’s non-oil producing private sector firms lowered their selling prices for the second month running in May. Anecdotal evidence suggested that increased market competition led to the latest price reduction.
Purchasing activity increased further in May, with the rate of growth in input buying being the joint-second highest in the 58-month survey history. Panel members frequently linked the rise in buying to increased new orders.
Stocks of purchases also rose during May, as some companies placed their purchases directly into stock in anticipation of rising demand.
As has been the case since data collection began in August 2009, suppliers’ delivery times improved during May and to the greatest extent since October 2012.
“Output and new orders both continue to grow well and the labour market is in rude health,” HSBC economist Williams said. “These would be good numbers at the best of times, given the weakness affecting so many other emerging markets, the data is better still,” Williams added.
SLOW SAUDI
On the other hand, the SABB report reflected a more subdued performance by Saudi non-oil companies in the private sector.
“The fall in the PMI largely emanated from a drop in the rate of new order growth in May,” SABB said. “Latest data showed that new business rose at the slowest rate since September 2011, with sales from abroad increasing at a much weaker pace as market demand showed signs of slowing.”
Nonetheless, the bank’s report said, total new order growth remained strong and overall demand firm. “There were reports that marketing and considerable efforts by sales staff had supported the latest net rise in new business,” it noted.
Companies continued to respond to growth of new work by increasing output at their units, with the latest growth the sharpest seen for three months. Not only did firms seek to deal with increased new business volumes, but also worked on existing contracts. “Backlogs of work increased during May at the sharpest rate of the year so far,” SABB said.
Despite evidence of capacity constraints at their units, Saudi Arabia’s non-oil producing private sector companies were broadly reluctant to increase their net hiring. Employment was up for a second successive month – with workers recruited to deal with increased workloads- but the net rise in payroll numbers was marginal.
Panellists signalled “some optimism” for growth by continuing to increase their purchasing activity. May’s survey indicated the sharpest rise in input buying for six months, with companies not only buying goods to service current workloads but also to boost inventories.
“Latest data showed that stocks of purchases continued to build in May, albeit at the slowest pace since the end of 2011,” SABB said.In spite of strong demand for inputs, average delivery times continued to improve. Competitive pressures amongst vendors were noted, and this helped to keep a lid on inflationary pressures.
SABB said input costs continued to rise in May, but at the slowest pace in the survey history. Both purchase prices and staff costs rose at only modest rates over the month.
A low increase in average input prices reduced the pressure on companies to raise their own charges in May, with companies offering a slight net discount for the first time in nine months, the survey report said.