UAE non-oil economy recovers more ground in March

Activity in the UAE’s non-oil economy rose to a four-month high in March, continuing to recover from a four-year low hit in January.

The latest monthly Purchasing Managers’ Index, produced for Emirates NBD bank by the data company Markit, showed it climbing to a four-month high of 54.5 in March, up from 53.1 in February.

The index is based on a survey of purchasing managers in the non-oil private sector and is designed to give a broad overview of economic activity. A reading above 50 indicates an expanding economy; below shows it receding.

Although the March PMI showed continued growth, Emirates NBD said that the index level over the whole of the first quarter was the weakest first quarter since 2012.

“While the improvement in … March is encouraging, the average PMI for first-quarter 2016 signals a further slowdown in the non-oil private sector of the UAE at the start of this year,” said Khatija Haque, the head of Middle East and North Africa research at Emirates NBD.

“Nevertheless, the solid growth in output and new orders in the first quarter suggests that domestic demand is holding up well despite the headwinds of a strong US dollar and low oil prices,” she said.

The impact of the oil price on the non-oil economy is hard to gauge but definitely has taken a toll, said Philip Leake, an economist at Markit.

“There is no doubt that falling oil prices have had an effect on related manufacturing and construction sectors,” Mr Leake said. “Along with a strong US dollar, it has been a key issue restricting growth in recent months … Growth is accelerating but remains below the trend recorded since 2012,” he said.

To the extent that the non-oil sector was stronger, it was driven by increases in output and new orders. The report said that input costs grew only modestly, allowing companies to lower prices amid tougher competition.

Still, non-oil exports fell for the first time in six months.

There was a sharp contraction in exports in general, last year, led by oil. Total exports fell by about US$38 billion to $330bn, and non-oil exports were also hit as the economies of oil-dependent Saudi Arabia, Qatar and Kuwait – the UAE’s most important non-oil export buyers – contracted, said the NBAD economist Alp Eke.

March employment was up for the 51st consecutive month, although at a slower rate than February. There was also a marginal drop in salaries, the first since December 2011.

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