Slow job creation holds back growth in the private sector

A weak labour market helped put the brakes on UAE private sector growth last month.

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Tepid employment creation helped to put the brakes on UAE private sector growth last month.

The headline reading of HSBC's purchasing managers' index slipped to 52 last month from 52.4 the previous month, according to data released by the bank yesterday.

The latest figures pointed to stabilisation and painted a picture of an economy still operating below capacity, said Simon Williams, the HSBC chief economist for the Middle East and North Africa.

"The weak employment growth and wages readings are a particular worry, while data showing that producers are unable to pass on higher input costs suggests their pricing power is still very limited and that their margins remain under pressure," he said.

Firms have still not started hiring in significant numbers after the global financial crisis in 2009 sparked a wave of job losses.

Average job creation in the three months up to last month was the slowest of any three-month period since the survey began in August 2009. Only 7 per cent of surveyed firms hired additional staff last month. Salaries of private-sector staff grew marginally last month, the first rise for three months. About 4 per cent of firms recorded higher wage bills, compared with just 1 per cent that noted a decline.

Firms' output fell to its lowest level for five months, signalling the slowest rate of expansion since September. Despite the dip, incoming new work grew at a strong pace. A pick-up in demand in the UAE and from abroad helped to drive the rise. Many surveyed firms reported a rise in new clients from African and Middle Eastern countries, with appetite also sustained by an improving economic environment.

The patchy performance of the private sector last month came as the latest data released by the Central Bank yesterday also hinted at a stuttering economy.

Money supply aggregate M1, which is made up of currency in circulation plus monetary deposits, fell by 0.2 per cent from Dh264.6 billion (US$72.03bn) at the end of November to Dh825.8bn at the end of December. Money supply M2, which includes M1 and resident deposits, rose by 0.5 per cent from Dh822.1bn at the end of November to Dh825.8bn at the end of the following month.

Bank deposits rose by 1.5 per cent during the same period to Dh1.06 trillion.

But bank loans and advances dipped by 0.3 per cent to reach Dh1.07bn.

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