The fortunes of the UAE and Saudi Arabia’s non-oil private sector diverged in April as a key gauge showed that business conditions in the Emirates got better from the previous month while those in the kingdom deteriorated.
The Emirates NBD UAE Purchasing Managers’ Index (PMI) for the UAE grew in April on the back of enhanced output and rising employment, boosting confidence in business growth prospects to a 34-month high while Saudi Arabia's PMI slipped to a record low as new orders dropped and the pace of job creation eased.
The UAE PMI rose to 55.1 in April from 54.8 in March. A reading above 50 suggests expansion, while a reading below 50 indicates a contraction. The survey is sponsored by Emirates NBD, Dubai’s biggest bank by assets, and produced by IHS Markit, a financial information services company.
“The improvement in business conditions in the UAE in April was driven by strong output and new order growth, including a recovery in export orders,” said Khatija Haque, head of Middle East and North Africa research at Emirates NBD.
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Output expansion advanced to a three-month high, which anecdotal evidence linked to stronger inflows of new business. The pace of job creation showed marked signs of improvement in April after it dipped to a 17-month low in March, according to the survey.
Overall, purchasing managers at more than 400 companies who were polled for the survey expressed a more positive sentiment towards future growth prospects than the previous survey.
The International Monetary Fund (IMF) expects the UAE’s GDP to expand 2 per cent in 2018 compared to the 0.5 per cent growth registered in 2017. That increase is in large part due to a resurgence in consumer confidence as oil prices rebound. Increased government spending and the state’s efforts to diversify its sources of income, including 5 per cent VAT, is aiding growth, economists say.
Meanwhile, in neighbouring Saudi Arabia, the PMI deteriorated to record lows in April as new orders contracted and job creation eased in the region's biggest economy.
That slowdown comes even as oil prices rallied this year and the Saudi Arabia, the biggest oil exporter in the world, boosted spending. Like the UAE, Saudi Arabia has also made efforts to diversify its sources of income and also implemented 5 per cent VAT.
The Emirates NBD’s Saudi PMI survey slipped to 51.4 from 52.8 in March.
“The further softening of the non-oil activity in April is surprising given the sharply higher oil prices so far this year, as well as the expansionary budget that was announced for 2018,” Ms Haque said.
“Firms have cited subdued domestic demand as a reason for the decline in new orders last month, although export orders declined as well.”
Demand for goods and services produced in Saudi Arabia fell in April and the contraction was the first that’s been recorded since the survey started in 2009.
Purchasing managers polled for the survey, however, said that the current slowdown was temporary and expressed confidence about the prospects of improvements in business conditions in the year ahead.