The UAE's non-oil economy cooled in June as the banking sector remained reluctant to lend to local businesses and order books grew at a pace faster than companies could keep up with.
The HSBC Purchasing Manager's Index (PMI) for the UAE fell to 53.2 last month, a three-month low for the measure, signalling a decreased rate of growth among the Emirates' private sector.
A PMI reading of more than 50 signals expansion; below 50 signals contraction.
The economy was in good health, but a lack of capacity was leading to growing backlogs for the UAE's private sector, said Simon Williams, the chief economist for the Middle East and North Africa at HSBC.
"I suspect there are further declines to come, but the positive new orders numbers suggest that the economy is managing to maintain some momentum despite the weak global backdrop and falling energy prices."
But the slowing pace of expansion comes as new lending to UAE companies and individuals slowed slightly. Lending grew by just 0.2 per cent during May to a total of Dh1.074 trillion (US$291 billion), according to the latest data from the Central Bank.
Liquidity tightened during the month, with deposits falling 1.2 per cent to Dh1.125tn.
During the first five months of the year, total bank lending has increased just 0.3 per cent.
A combination of more stringent regulation and the effects of European banks withdrawing funds from the Middle East was likely to prolong tighter liquidity conditions among UAE banks, analysts from Deutsche Bank wrote in a research note.
"We believe this scenario is unlikely to improve in the short to medium term given ongoing deleveraging in the corporate sector, tighter regulations regarding retail and corporate/sovereign exposures, and the risk that liquidity could tighten," the report said, adding that about a fifth of banking system assets are funded from overseas.
Of particular concern is a new Central Bank regulation that caps the amount of exposure to single borrowers at 100 per cent of regulatory capital. Lenders have until September 30 to comply.
The rule is intended to reduce local lenders' vulnerability to a large corporate default and prevent a repeat of the chaos caused by the 2009 default by Dubai World.
Emirates NBD and National Bank of Abu Dhabi are currently in breach of the new limits, analysts from Deutsche Bank added.
Despite the dip in the PMI data, the report showed signs that the UAE was being supported by neighbouring countries.
"The acceleration in new export orders suggests that the UAE's private sector is benefiting from strong growth elsewhere in the Gulf region," analysts from Capital Economics wrote in a research report.
ghunter@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
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Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
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