Increase not reflected in staffing levels as employment remains stable
Business conditions in the UAE’s non-oil private sector economy have shown the greatest improvement since October 2014.
According to the Emirates NBD UAE Purchasing Managers’ Index, the indicator rose to 59.4 in May from 57.6 in April – a third successive monthly increase.
Stronger market demand, marketing activity and the start of new projects all reportedly contributed to the latest increase, with growth expected to continue over the coming year, while business optimism was only fractionally weaker than the previous month’s record high.
The rate of growth in new business in the sector also quickened at a near-record pace. As well as improving underlying demand, price discounting helped secure new orders. New export orders, meanwhile, rose at the fastest pace in the near ten-year survey history, with new business from Saudi Arabia and Oman mentioned.
Price discounting was reflected in an eighth consecutive monthly reduction in output prices as companies were able to lower charges due to muted cost inflation. While overall input prices rose only marginally in May, and at the slowest pace in nine months.
Higher new orders led companies to increase their purchasing activity, which rose at a survey-record pace. And positive expectations regarding future workloads encouraged stock building midway through the second quarter. Inventories of purchases rose to the greatest extent since March 2018.
However, while both new orders and business activity increased at substantial rates in May, this was not reflected in employment rats, which were “broadly unchanged” during the month, with staffing levels remaining stable.
Khatija Haque, Head of MENA Research at Emirates NBD, sounded a word of caution. She said: “While the rise in the headline PMI indicates faster GDP growth in the UAE’s non-oil private sector, the environment remains a challenging one for businesses.
“The strong rise in both output and new orders last month was on the back of continued price discounting by firms as well as stronger growth in export orders. Moreover, when the headline PMI was last at a similar level (in October 2014 and January 2015) the survey showed solid growth in private sector jobs, which is not the case this time.
“The employment index in May 2019 was only fractionally above the “no-change” level and wages were stagnant as well, so the sharp rise in the volume of business activity is not yet benefitting households.”