UAE Private Sector Growth Slows, Employment Shrinks

Expansion of the United Arab Emirates’ non-oil private sector slowed to a five-month low in August as total employment shrank for the first time on record, a survey of companies showed on Tuesday.

The seasonally adjusted Emirates National Bank of Dubai UAE purchasing managers’ index, which covers manufacturing and services, fell to 55.0 last month from 55.8 in July. A reading above 50 indicates expansion and below that level, contraction, Reuters reported.

Output growth accelerated to 63.1 from 61.9, but growth in new orders slowed to a 20-month low of 57.1 from 60.6. The reading for employment sank to 49.0 from 50.2, falling below 50 for the first time since the survey was launched in August 2009, .

Khatija Haque, head of regional research at Emirates NBD, Dubai’s biggest bank, said the lack of job creation appeared to be caused by cost containment and efficiency measures at companies facing a sustained squeeze on profit margins.

“Although input costs were unchanged month-on-month in August, these have been rising over the last few years even as selling prices have declined on average,” she said, noting that output prices fell outright for a fourth straight month.

Among various pressures on corporate bottom lines, the UAE imposed 5% value-added tax at the start of this year, which has pushed some companies into discounting to keep market share.

In the last several months, both Abu Dhabi and Dubai, the two biggest emirates in the UAE, have announced steps to cut or freeze government fees and charges to reduce cost pressures on companies.

“The August PMI survey suggests that while activity in the non-oil private sector is expanding at a similar rate to last year, margin pressures on firms mean that this growth in new work and output is not translating to job creation or higher wages,” Haque said.

“As a result, we retain our view that private consumption is unlikely to contribute significantly to gross domestic product growth this year, with government spending and investment, and net exports likely to be the engines of growth.”