Gloomy economic data suggests the UAE economy may be at risk from a global growth slowdown.
Slowdown shows fresh evidence of hitting UAE
Fears that a global economic slowdown will hit the UAE are mounting as business activity falls and the country slides in a world competitiveness ranking.
Private-sector activity was down sharply last month, new data showed. HSBC's headline purchasing managers index (PMI) score slid the most since the survey began in August 2009.
Another gloomy set of data showed the UAE fell two notches in an index of the most competitive countries in the world.
Together, the data provides further signs the UAE economy may start to feel the effects of slower global growth, say economists.
"You can't help feeling the slowdown across developed and emerging markets is evident here," said Simon Williams, the chief economist of HSBC in the Middle East and North Africa. "The concern is that in the coming months a deteriorating global economy will have an impact on demand for services and potentially access to funding."
Signs of weakening growth are springing up across the world as stalling jobs growth and a debt crisis on both sides of the Atlantic stoke concern about a double-dip recession.
However, indications are suggesting the UAE may be dragged into the slowdown.
Output, employment and new orders all slowed in the UAE last month, according to the PMI survey.
Although the survey is seasonally adjusted, Ramadan and the summer may mean the decline has been overstated, said HSBC.
But the index still suggested the UAE economy was losing momentum, said Mr Williams. The UAE headline score last month dropped 2.5 points to 50.9, its lowest level in 14 months and hovering close to the 50-point level indicating a contraction.
Output dropped by more than four points month on month, the fourth drop in a row. New orders extended declines recorded in July, while employment growth also slowed.
"The UAE and Dubai are open to the world, and I would not be surprised if trade was to soften if the slowdown extends," said Tim Fox, the chief economist of Emirates NBD.
The UAE's drop in the World Economic Forum's Global Competitiveness Report was perhaps another sign of bleakening prospects for the country's economy, although a source close to the review process disputed some of the data used to compute the score.
The country's 27th-place ranking among 142 countries in the report "reflects deterioration in a number of areas, but the most striking is the country's loss of its ability to harness the latest technologies for productivity improvements", the report says.
Switzerland and Singapore topped the index, which measures countries on 12 "pillars" including the quality of education, health care, infrastructure and labour market efficiency. The ranks attempt to gauge the openness of economies and by doing so encourage lower-ranking countries to improve.
Policymakers are striving to stop their economies slipping into a renewed downturn.