UAE business activity surges to eight-month high

The upturn in the UAE’s non-oil private sector regained momentum midway through the second quarter thanks mainly to a sharp expansion of output, according to a report accompanying the latest PMI data for the country.

Adjusted for seasonal influences, the UAE Purchasing Managers’ Index (PMI) – an indicator of the operating conditions in the non-oil private sector economy – stood at 54 points in May, up from 52.8 in April.

The latest figure was the second-highest in six months, albeit still below the long-run series average (54.5). It also signalled an acceleration in growth following a slowdown in the previous month.

Data confirmed that new orders had risen solidly in May. Growth was faster than in April, but remained much slower than the survey average.

Activity increased at the fastest pace in eight months during May, helped by a pick-up in new business growth, the report states but maintains that data points to areas of underlying fragility, as both employment and input buying rose only slightly.

The expansion of the latter was the least marked since September 2011. Cost pressures intensified but remained historically subdued, while output prices fell for the seventh month running.

“The improvement in the UAE PMI was mainly due to strong growth in output last month, with new business picking up as well. This confirms our view that the non-oil sector of the UAE is continuing to expand, albeit at a slower rate than last year,” said Khatija Haque, Head of Mena Research at Emirates NBD.

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

Key Findings

    Higher activity underpins faster improvement in business conditions
    New order growth picks up, but input buying rises only modestly
    Charges fall for seventh month in succession

The overall improvement in the health of the sector was driven by higher output in May. The rate of expansion was the quickest since last September, with panellists commenting on new work generated by marketing initiatives.

Contributing to the relative weakness of total new work was a negligible rise in exports. Despite signalling an increase for the first time in three months, the respective index posted one of its lowest readings since the series began in 2009.

In spite of faster expansions in output and new business, growth of purchasing activity slowed in May. Moreover, the extent of the slowdown was substantial – the latest rise was the weakest in 56 months.

Some panellists indicated that they had postponed input buying as their stock levels had been sufficient to cope with demand. Pre-production inventories increased modestly.

Employment remained an area of concern in May. While job creation resumed following a stagnation in April, the rate of hiring was marginal and among the weakest seen in nearly seven years of data collection. Incoming new projects therefore placed pressure on operating capacity, though backlogs rose only slightly.

On the price front, total input costs in the UAE’s non-oil private sector rose further in May. The overall rate of inflation picked up to a seven-month high. That said, cost pressures remained muted in the context of historical data.

Charges decreased for the seventh consecutive month. The rate of decline was in line with the trend over that sequence. As in previous months, discounts were widely attributed to greater competition.

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