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UAE non-oil sector new order growth slows down

DUBAI, January 10, 2019

The end of 2018 saw a moderation in growth across the UAE’s non-oil private sector, with slower increases in output and new orders recorded, according to the latest Emirates NBD UAE Purchasing Managers’ Index (PMI).

Evidence from the survey suggested that where sales were secured, this was often due to price discounting as output prices fell for the third month running. This was consistent with a general lack of input cost pressure in the non-oil private sector.

Efforts to control costs in a competitive environment led companies to leave their staffing levels broadly unchanged and reduce their stocks of purchases for the first time in four months.

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 – posted 54.0 in December, down from 55.8 in November and signalling the weakest improvement in business conditions since October 2016.

The drop in the headline figure reflected smaller contributions from all five constituent indices, suggesting a broad slowing of growth across the non-oil private sector at the end of 2018.

The latest expansion of business activity was solid overall as new orders increased again, but slower than that seen in November. New orders rose at the weakest pace since August. The offering of discounts in a competitive marketplace reportedly contributed to rises in both activity and new business.

Selling prices were reduced for the third successive month, albeit modestly. Companies were helped in the offering of discounts to customers by relatively weak input cost inflation. Overall input prices rose only marginally in December, with both purchase and staff costs broadly following the overall trend.

Efforts to control costs discouraged firms from hiring additional workers at the end of 2018, despite increasing new business. Employment was broadly unchanged, following a marginal rise in November.

Firms in the UAE’s non-oil private sector continued to expand their purchasing activity in response to growth of new orders and higher output requirements. Data suggested that purchased items were only used to support higher output, rather than also to build stock holdings. Inventories of inputs decreased for the first time in four months, with some firms linking this to efforts to manage cash flow more efficiently.

Companies generally remained optimistic that business activity will continue to increase over the course of 2019. Optimism was based on expectations of improving economic conditions and success in securing additional sales over the next 12 months.

Business activity in the UAE’s non-oil private sector continued to rise solidly in December, albeit at a slower pace than seen in the previous month. Where output increased, panellists mentioned higher new business, but also partly linked growth to promotional offers. These were reportedly the result of a competitive marketplace.

New Orders

Competitive pricing and good quality products helped companies in the UAE to secure greater volumes of new business during December. New orders have increased throughout the history of the survey which began in August 2009. That said, the rate of expansion softened from November and was below the series average.
Export Orders

December data signalled a slowdown in the rate of growth in new export business. Although new orders from abroad increased for the ninth consecutive month, the rate of expansion was the joint-weakest in this sequence. Anecdotal evidence suggested that new export business had mainly been secured from clients in neighbouring countries.
Backlogs of Work

As has been the case in each month throughout the past two years, backlogs of work increased in December. The rate of accumulation was broadly in line with those seen in the previous two months. According to respondents, rising new orders and delays in receiving payments from customers contributed to the build-up in outstanding business.
Suppliers’ Delivery Times

Suppliers’ delivery times shortened solidly during December, with the latest improvement in vendor performance the most marked since June. That said, lead times shortened to a lesser extent than the series average. Where quicker deliveries were recorded, panellists mentioned that requests for shorter lead times in line with business requirements had been met by suppliers.

Staffing levels were broadly unchanged in December, after having risen marginally in November. While some respondents took on extra staff in response to higher new orders, others were reportedly reluctant to hire amid efforts to control costs. The vast majority of panellists (97%) left their staffing levels unchanged at the end of the year.
Output Prices    

Non-oil companies in the UAE reduced their output prices for the third successive month in December. That said, the pace of reduction was slight, and the weakest in the current sequence of falling charges. Respondents indicated that they had offered promotional discounts amid competitive pressures.

Overall Input Prices

Overall input prices rose only slightly in the UAE’s non-oil private sector in the final month of 2018. The rate of inflation was the weakest in the current four-month sequence of increasing overall cost burdens. Slower rises in both purchase prices and staff costs were recorded.

Purchasing Prices

In line with the picture for overall input prices, purchase costs rose at a slower pace during December. The latest rise in purchase prices was marginal and the slowest since August as almost all respondents signalled no change from November. Purchase costs have now increased in each of the past 19 months.
Staff Costs

Staff costs increased only fractionally in the UAE’s non-oil private sector in December, following a slight rise in the previous month. Aside from the increase in November, wages and salaries were little-changed through the second half of 2018, pointing to subdued salary inflation.
Quantity of Purchases    

Non-oil companies in the UAE continued to record increases in purchasing activity during December, with respondents often linking the latest rise to higher new orders and output requirements. Input buying rose sharply at the end of 2018, although the rate of expansion was slower than that seen in the previous month.
Stock of Purchases

December data suggested that purchased items were used to support output growth rather than to build stocks as inventories of purchased items decreased for the first time in four months. Some panellists indicated that stocks had been lowered as part of efforts to manage cash flow more efficiently. The fall in inventories was the most marked since March 2012.
Future Output     

Companies remained strongly optimistic that activity will increase over the coming year, with approximately two-thirds of respondents confident regarding the 12-month outlook. Expectations of successful sales drives and improving market conditions were among the factors cited by those respondents predicting activity to increase. – TradeArabia News Service

Tags: UAE | Private sector | non-oil | PMI |

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