x Abu Dhabi, UAEFriday 28 July 2017

Hiring in private sector loses pace

Private sector employment growth stalled for the first time in over two years last month and company salary costs decline, indicating a loss of momentum in the UAE economy.

An Emirati student looks for a job at a job fair in Dubai. Paulo Vecina / The National
An Emirati student looks for a job at a job fair in Dubai. Paulo Vecina / The National

Private-sector employment growth stalled last month for the first time in more than two years - further evidence of a loss of momentum in the UAE economy.

Only 5 per cent of companies took on workers during the month, according to HSBC's purchasing managers index (PMI). But recruitment growth remained largely flat as 5 per cent of companies also shed employees.

Average wages and salaries fell for the first time since November 2010.

"Employment growth has been weak for a while, and the salary trend has been weak as well," said Simon Williams, the chief Middle East economist at HSBC. "My sense is that private-sector businesses are looking at 2012 with great caution."

Non-oil business activity expanded at its lowest level in four months, according to the PMI. The index fell to 51.7 points last month. A reading above 50 indicates growth in the business sector.

The data provides more signs that the economy may be losing steam. Banking data released last week showed lending exceeded deposits in the financial system in November for the third month running.

As a relatively open economy, the UAE is more exposed than other GCC states to repercussions from a weaker global economy.

Export orders reached an 18-month low, with the limited rise in orders contrasting with the highs in the middle of last year.

Some businesses indicated that less-favourable business conditions abroad were weighing on demand.

Backlogs of work fell for a sixth straight month, and what was only a slight increase in output prices suggested relatively sluggish domestic demand, said HSBC.

Overall output fell 1.5 points to 53.3 points from the previous month, the PMI data showed.

One in five monitored companies registered an increase in output, with the strongest performance being among small firms.

Employment dropped last month for the first time in the survey's 29-month history. Those companies that did take on workers attributed the hiring to an increase in orders, expectations for higher demand and expansion of their business. Job shedding was attributed to resignations or low workloads.

The majority of surveyed firms reported unchanged staff costs. A total of 1.1 per cent of respondents reported a reduction in their payroll compared with 0.7 per cent that recorded an increase.

The UAE's weaker PMI results contrast with a stronger performance in Saudi Arabia's data.

Fiscal policy in the UAE was less supportive of the economy than in Saudi Arabia, said Mr Williams. The kingdom's government last week approved a stimulus budget for this year, estimating spending at 690 billion riyals (Dh675.84bn). This follows a 25 per cent rise in public spending last year.

"UAE PMIs are unlikely to pick up pace in the short term," Mr Williams wrote in a research note. "As well as its relatively high exposure to external headwinds, the UAE's fiscal policy is also less supportive than that of many of its neighbours."

The picture contrasts with that from the start of last year, when the UAE economy was benefiting from unrest elsewhere in the region. Banking and tourism in the Emirates both received a boost from external instability.

 

tarnold@thenational.ae

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