Tuesday 05, June 2018 by Jessica Combes

UAE non-oil private sector growth accelerates to four-month high


The health of the UAE’s non-oil private sector improved at the fastest rate in four months in May 

Sharper growth in both output and new orders were the key drivers behind the latest expansion, according to the Emirates NBD Purchasing Manager’s Index (PMI). Furthermore, new export business reached a 30-month high alongside reports of stronger demand from neighbouring GCC countries. Responding to robust market conditions, new project wins and strong growth impetus, firms reported the highest degree of confidence towards the year ahead since this index began in early-2012.

The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector. 

“The strong PMI reading in May was partly due to a rebound in export orders - reflecting improved external demand conditions - as well as significant price discounting domestically.  As a result, while the headline index shows strength in activity, profit margins remain under pressure,” said Khatija Haque, Head of MENA Research at Emirates NBD. 

The headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index™ (PMI®) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – rose to 56.5 in May, from 55.1 in April. The figure was indicative of a sharp improvement in business conditions across the non-oil private sector, and one that was above the long-run average. The PMI has registered in growth territory continuously since September 2009. 

A sharper expansion in output was recorded in the latest survey, matching that registered in January. Companies commented on a strong level of demand from both domestic and external sources. Indeed, new export orders increased at the fastest pace since November 2015. Panel respondents frequently noted improving demand from neighbouring GCC countries. 

Reflecting sharp growth in client demand, new project wins and developments surrounding Expo 2020, positive sentiment in the non-oil private sector reached its highest for at least six years. Reflecting a strong level of business confidence alongside rising output requirements, firms hired additional staff at the fastest pace in four months. That said, the rate of growth was only slight overall and below the long-run average. Some firms that reported falling employment levels linked this to cost optimisation. 

On the price front, firms reported a reduced level of input cost inflation in May. Softer staff cost and purchase price inflation contributed to only a modest increase in operating costs. Promotional activity was reported in the most recent survey, as reflected by a solid drop in output charges. 

May data signalled a continuation of rising backlogs of work in the non-oil private sector. The current phase of build-up was extended to 17 months. Firms linked higher levels of work outstanding to strong inflows of new business.

Stocks of input goods rose in the May’s survey. According to anecdotal evidence, companies acquired additional stockpiles of goods in anticipation of rising output requirements.

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