UAE business activity at six month high amid sharp rise in output

Business activity growth of the UAE’s non-oil private sector accelerated from June’s recent low in August, surging to a six-month high, according to a corporate survey.

Business conditions improved at the strongest rate in six months, driven by sharper expansions in output and new orders, said the seasonally adjusted Emirates NBD Purchasing Managers’ Index (PMI).

Marked growth of new work resulted in greater pressure on operating capacity, however, as backlogs of work rose at the quickest pace since the survey began in August 2009, the bank said in the PMI report.

On the price front, charges fell for the sixth time in seven months, contrasting with a further rise in input costs.

The UAE PMI climbed to a six-month high of 57.1 in August, up from 55.8 in July. The bank said that the latest reading is indicative of a robust improvement in business conditions, and pointed to a further acceleration in growth from the 22-month low seen at the end of Q2.

“The sharp rise in the UAE PMI in August confirms our view that Ramadan likely contributed to the softer readings in June and July,” said Khatija Haque, Head of Mena Research at Emirates NBD.

“Encouragingly, new orders and output growth readings remain high, suggesting strong domestic demand. Slower growth in export orders last month may reflect the impact of currency appreciation relative to other emerging markets,” she added.

Key Findings

· Marked expansion in output supports robust improvement in business conditions

· New business rises at faster pace, despite slower export growth

· Survey-record increase in backlogs of work

The rise in the headline index was underpinned by sharper growth of two of its main components in August, namely output and new orders.

Activity rose at the fastest pace since February, while the rate of expansion in new business was a four-month high. Anecdotal evidence linked output growth to stronger client demand, which was in turn attributed to promotional activities and a general improvement in market conditions.

That said, data suggested that a slowdown in export growth weighed on total new work during August. Although solid, the rate of expansion eased to a two-year low.

Purchasing activity at UAE non-oil private sector firms rose further in August, extending the current sequence of growth which has run for more than five years.

The pace of increase picked up to a seven-month high, similar to the trends seen for output and new work inflows. Subsequently, input stocks rose more quickly in August.

Non-oil private sector employment in the UAE also increased, reflective of greater business requirements. However, the rate of job creation was only moderate overall, and remained below the average registered in 2015 so far.

A further by-product of stronger order books was growth of outstanding business in August. In fact, the rate of backlog accumulation quickened to a survey-record high.

Meanwhile, average tariffs decreased for the sixth time in the past seven months during August. This was despite another solid rise in total input costs.

According to panellists, greater competition was the main factor placing downward pressure on selling prices, although the rate of decline was only slight overall.

In contrast, the rate of cost inflation was at a seven-month high, helped by further rises in both salaries and purchasing costs.

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