The non-oil private sectors of both the UAE and Saudi Arabia gained steam in July, supported by sharp expansions in output and new work, according to the latest Emirates NBD PMI surveys.

UAE: In response to greater output requirements, firms scaled up inventories and employment. On the downside, new export orders fell at the quickest pace in the history of the survey. On the price front, firms faced stronger input cost inflation, but were unable to pass these on to consumers amid intense competitive conditions.

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

Commenting on the UAE PMI survey, Khatija Haque, head of Mena Research at Emirates NBD, said: “The PMI survey in July showed that domestic demand remained robust, offsetting weakness in external demand last month.  Firms were more optimistic about the coming year, and increased inventories at a record rate, partly in anticipation of further order growth.”

Key findings
•    Sharp expansions in output and new orders
•    Survey-record rise in inventories
•    New export orders decline at sharpest pace in series history

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 three-month high of 56.0 in July from 55.8 in June. This was indicative of a sharp improvement in operating conditions in the non-oil private sector. Notably, the performance of the sector was strong in context to historical data.

The overall upturn in the sector was underpinned by a sharper increase in output. A combination of more projects and favourable economic conditions was reported by panellists as having contributed to greater business activity.

A sharp rise in new orders was seen in July, despite growth easing slightly from the prior month. According to anecdotal evidence, promotional activities underpinned improvements in client demand.

In contrast to the upward trend seen for total new orders, new export work fell for the second consecutive month in July. The rate of contraction was sharp overall, with the respective index falling to a record low.

Reflecting further improvements in output (and subsequent capacity pressures), firms increased their payroll numbers. The rise in employment was only marginal, however.

The ongoing upturn in output encouraged companies to engage in input buying. As a result, inventories held by firms operating in the UAE rose at a record pace. In part, the increase in stocks of purchases reflected positive expectations of further improvements in market demand.

On the price front, average input costs rose for the second consecutive month and inflation was solid overall. According to underlying data, higher cost burdens stemmed from greater purchasing prices and staff costs, with the sharper increase noted in the former. Panellists commented on a general increase in raw materials prices.

Finally, companies expressed optimistic projections for output over the coming 12 months. Business confidence was rooted in orders in the pipeline and forecasts of further improvements in demand conditions.

Saudi Arabia: Greater output requirements encouraged companies to purchase more inputs and stimulated job creation in the sector. Weakness was seen regarding trade, however, as new export orders fell. On the price front, input costs rose at a solid and accelerated pace. However, firms’ ability to fully pass on higher cost burdens to customers was restricted by intense market competition and charges increased only marginally.

Commenting on the Saudi Arabia PMI survey, Haque said: “Faster growth in output and new orders helped the headline PMI in Saudi Arabia rise in July, signalling the fastest rate of non-oil sector expansion in three months. Firms were more optimistic last month, and this likely contributed to increased buying activity and inventory accumulation.”

Key findings
•    Headline PMI increases to 55.7 in July
•    Sharper expansions in output and new orders
•    Renewed contraction in new export orders

The Emirates NBD Saudi Arabia PMI rose from 54.3 in June to 55.7 in July. This was consistent with a robust improvement in overall business conditions, the strongest since April. However, the latest performance was weaker than the long-run series trend.

The main factors contributing to the upward trajectory of the non-oil private sector economy were sharper expansions in both new orders and output. Anecdotal evidence highlighted greater projects, good economic conditions, stronger underlying demand and higher construction activity.

Concurrently, June’s increase in new export orders was short-lived, with non-oil private sector companies noting a renewed contraction in July.  The rate of decline was fractional, however. Panellists commented on weaker demand from international markets for Saudi Arabian goods and services.

Underlying data provided evidence of ongoing pressures on operating capacity as backlogs rose for the ninth consecutive month. Subsequently, firms increased their payroll numbers, but only marginally.

In response to greater output requirements, businesses scaled up their purchasing activity during July. Moreover, the upturn in input buying was the quickest since April. Subsequently, inventories rose substantially.

On the price front, input cost inflation quickened to the fastest since April and was solid overall. Underlying data suggested that cost pressures mainly emanated from higher purchasing prices. Staff costs rose only modestly in comparison, but at the fastest rate in ten months. Panellists commented on a general rise in market prices for raw materials. Firms raised their output charges, but only marginally amid reports of intense competitive conditions.

Future output data indicated that business confidence improved in July. Forecasts of a better economic scenario and promotional activities were the key factors boosting optimism at the start of the third quarter. – TradeArabia News Service