Commercial Activity in the UAE Surges at the Fastest Pace in 5 Years

The Purchasing Managers' Index (PMI) in the UAE has indicated sustained robust growth in the non-oil sector in February, as business conditions rapidly improved, marked by a significant increase in activity and sales. Companies once again received larger quantities of new orders as market demand and customer activity continued to escalate.

This has resulted in the largest increase in production levels since mid-2019, propelling commercial activity in the UAE to its fastest pace in 5 years, despite other indications of ongoing competitive pressures.

The Standard & Poor's Global UAE Purchasing Managers' Index, released by Standard & Poor's Global, rose from 56.6 points in January to 57.1 points in February, indicating a strong increase in overall operating conditions. This reading is largely consistent with the trend observed since the last quarter of the previous year, which was the strongest since mid-2019.

The improvement in operating conditions was driven by a sharp expansion in non-oil private sector activity. The latest study data indicated the fastest increase since June 2019, with 38% of the companies included in the study recording a monthly increase. Increased new business, improved customer activity, and increased marketing and development work were among the factors cited by participating companies as driving increased activity.

The rise in demand rates led to a significant increase in new business inflows in February. The growth rate remained above the long-term trend but fell to its lowest level in six months. While customer orders rose overall, many companies cited the impact of competitive pressures on growth.

Prices witnessed greater reductions during February, at a rate that was the strongest in nearly three and a half years. Companies highlighted their need to maintain market share, often including offering discounts to customers. Price reductions were recorded despite a further strong increase in overall input costs associated with higher material prices and wages.

Meanwhile, non-oil producing companies noted some pressure on their supply chains in February due to shipping difficulties arising from the Red Sea. Some companies reported delayed deliveries of production supplies, leading to a severe backlog of unfinished business. However, overall supplier performance remained positive.

Many companies reported rapid delivery of production supplies upon request. Hiring activity accelerated in the recent study period, in order to help with workloads and offset growing backlogs. As a result, employment levels increased at the fastest rate since last May. Likewise, purchases of inputs continued to grow sharply with companies reportedly purchasing materials in bulk and looking to replenish their inventories.

Corporate expectations rose to their highest level in four months, as companies expected activity, demand, and profits to continue improving in the future.

David Owen, chief economist at Standard & Poor's Global Market Intelligence, said: "The UAE Purchasing Managers' Index continued its growth, indicating growth in the non-oil economy at the beginning of 2024. The Production Index, one of the largest components of the PMI, rose to its highest level since June 2019, indicating a rapid increase in business activity as companies look to take full advantage of strong market growth and maintain a competitive advantage."

He added: "The pressures on production capacity were evident, with backlogs rising at their fastest pace in nearly four years, as shipping disruptions in the Red Sea led to delays in transportation operations. The improvement in overall supply chain performance was the weakest since last July. However, it has continued to improve, indicating that the impact on suppliers is limited so far."

He continued: "Business forecasts indicate that companies are optimistic about next year, although fears of market congestion continue to appear to be further dampening sales growth. New orders rose at their weakest rate in six months, indicating that production growth may also begin slowing down.

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