Improving economic conditions at the beginning of 2018 resulted in significant gains and new orders for non-oil, according to the seasonally adjusted Emirates NBD UAE Purchasing Managers Index (PMI).
The index – a composite indicator designed to give an overview of conditions in the non-oil economy – posted a 56.8 in January, down from 57.7 the month before.
According to the data, improved economic conditions and competitive pricing saw a sharp increase in January orders, which was accompanied by a second consecutive month of new rising new export orders.
Additionally, the higher volume of new orders led to a sharp rise in business activity, and – despite a rise in output – work backlogs continued to accumulate.
Non-oil sector private firms were also found to have increased their employment numbers in line with the additional workloads, with the rate of job creation found to be the fastest since January 2017.
The Emirates NBD data found that value-added tax (VAT) had a noticeable impact on pricing and purchasing in January, with many companies linking higher purchase prices to the impact of the new tax reforms. Purchase costs increased at the sharpest rate since November 2011, while wages and salaries also increased at more rapid pace.
For the first time in five months, output charges increased, with many respondents suggesting this was because of the inclusion of VAT in selling prices.
Rates of expansion in input buying and stock purchases, however, slowed down considerably in January, which the data suggesting stock-building in advance of VAT’s implementation in January remained sufficient to deal with current workloads.
Notably, business confidence in January was found to the strongest since June 2015, with panellists predicting that activity will increase further once companies become more familiar with VAT, with higher orders also expected to further support growth.
“The January survey indicates that non-oil sector growth got off to a strong start in 2018, notwithstanding the slight decline in the headline index,” said Khatija Haque, head of MENA Research at Emirates NBD. “The impact of VAT is evident in the sharp rise in input costs last month.”
“While selling prices also increase in January, the survey suggests that the full rise in input costs was not passed on to consumers,” Haque added.
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