Thursday 22 August 2019

The sector has recorded sharper expansions in output
and new orders

UAE non-oil output growth hits 5-month high

DUBAI, February 5, 2019

The start of 2019 saw a sharp and accelerated rise in output in the UAE’s non-oil private sector with activity growing at the strongest pace since August last year, said IHS Markit, a world leader in critical information and analytics.

The rate of expansion was also faster than the series average. Where output increased, panellists linked this to higher new orders, as well as marketing and promotional activity.

The headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – rose to a seven-month high of 56.3 in January from 54.0 in December. The latest reading signalled a strong monthly improvement in business conditions, and one that was greater than the survey average.

Central to the improved headline figure were accelerated growth rates for both output and new orders. Activity rose to the greatest extent since August 2018, with marketing and promotional efforts helping to support the latest expansion. While total new orders rose at a sharp pace, the rate of growth in new export orders was much weaker and eased to the slowest in the current ten-month sequence of expansion.

Activity requirements increased in January, leading companies to raise their staffing levels for the fourth month running. That said, the rate of job creation remained modest as some firms expressed a reluctance to hire amid efforts to limit cost inflation.

These efforts were generally successful as staff costs rose only marginally again at the start of 2019. Purchase prices also increased at a relatively modest pace.

Output prices, meanwhile, decreased for the eighth time in the past nine months. Panellists reported having offered discounts to customers in order to help stimulate sales amid competitive market conditions.

As has been the case on a monthly basis throughout the past eight-and-a-half years, UAE non-oil companies increased their purchasing activity in January. The latest rise was sharp as firms responded to higher activity requirements. Despite this, inventory levels were broadly unchanged as inputs were used to support output growth.

The improving demand picture is expected by firms to continue during 2019, with this alongside marketing activities set to help lead to increases in output. Business confidence improved in January and was among the highest since the series began in April 2012.

New Orders

UAE non-oil companies recorded a further monthly rise in new orders during January, with the rate of expansion ticking up from that seen at the end of 2018. Some panellists reported improving customer demand, while others indicated that the offering of discounts had helped to encourage sales. More than 37 per cent of respondents noted a rise in new business, against 13 per cent that posted a fall.
Export orders

While the rate of growth in total new business accelerated in January, new export orders rose at a slower pace during the month. In fact, the increase in new business from abroad was slight and the weakest in the current ten-month sequence of expansion. Highlighting the weakness of the latest rise, the vast majority of respondents (95 per cent) saw no change in new export orders.
Backlogs of work

As has been the case in each of the past 25 months, backlogs of work increased in the UAE’s non-oil private sector during January. Panellists generally linked the latest rise in outstanding business to higher new order volumes. The rate of accumulation was solid and above average, despite easing to a ten-month low.
Suppliers’ delivery times

UAE non-oil private sector firms continued to register improvements in the performance of their suppliers at the start of 2019. Delivery times shortened at a solid pace, albeit one that was less marked than recorded in December. A number of respondents indicated that their suppliers had been able to meet requests for faster deliveries.

Higher activity requirements led companies to take on extra staff during January, extending the current sequence of job creation to four months. The latest rise in employment was the most marked since May 2018, but only marginal overall as some respondents were reluctant to hire in order to limit input price inflation.
Output prices    

Output prices continued to decrease in January, the eighth time in the past nine months in which a reduction has been noted. Where charges were lowered, panellists linked this to efforts to attract customers in a competitive market. The rate of decline was marginal, however, as some companies increased selling prices in line with higher input costs.

Overall input prices

January data pointed to a fifth consecutive monthly increase in overall input prices in the UAE non-oil private sector. Despite accelerating from that seen in December, the rate of inflation remained modest as more than 95 per cent of panellists saw no change in overall input costs. Modest increases were registered for both purchase prices and staff costs.

Purchasing prices

Purchase prices at UAE non-oil private sector companies increased for the twentieth successive month in January, albeit only modestly as only 5 per cent of panellists noted a rise in their purchase costs during the month. Where purchase prices did increase, respondents generally linked this to higher raw material costs.
Staff costs

The start of 2019 saw a further modest increase in staff costs among companies operating in the UAE’s non-oil private sector. The rate of inflation was marginal and broadly in line with the average seen throughout the current five-month sequence of rising wages and salaries.
Quantity of purchases    

Increasing workloads led companies to raise their purchasing activity again during January, extending the current sequence of expansion to eight-and-a-half years. Moreover, the rate of growth was sharp, having quickened from that seen in December. Around 24 per cent of panellists raised input buying, while 7 per cent of respondents signalled a fall.

Stock of purchases

Stocks of purchases were broadly unchanged in January. This followed a slight decline in the previous month. The broad stabilisation of inventories in the non-oil private sector was recorded in spite of a sharp increase in purchasing activity as companies generally used purchased inputs to support output growth.
Future output

Business sentiment remained elevated in January, strengthening from that seen in December as more than 68 per cent of respondents forecast a rise in activity over the coming year. Recent improvements in demand are expected to continue, while marketing activities are predicted to bear fruit during 2019. Confidence was among the highest since the series began in April 2012. – TradeArabia News Service


More Finance & Capital Market Stories

calendarCalendar of Events