The Emirates NBD Purchasing Managers’ Index for the UAE rose to 57.3 in August from 56.0 in July, signalling the sharpest improvement in business conditions since February 2015. Growth in the UAE non-oil private sector economy climbed to the fastest pace seen since February 2015, bolstered by sharp expansions in new orders and output.
August data showed new export orders rose for the first time in three months, with other Gulf Cooperation Council countries being mentioned as key sources of international demand. Moreover, the ongoing upturn in new business translated into job creation across the non-oil private sector.
Increasing output requirements prompted firms to engage in purchasing activity, which contributed to a record rise in inventories. Meanwhile, firms continued to face upward cost pressures. In contrast, output charges stabilised during August.
“The August purchasing managers’ index survey shows a strong expansion in the non-oil private sector, underpinned by sharply higher output, new orders and inventories. Firms have indicated that new projects and competitive pricing are supporting demand and activity in the non-oil sector. This is in line with our view that investment ahead of Expo 2020 will be the key driver of the UAE’s non-oil growth over the next few years,” said Khatija Haque, Head of Mena Research at Emirates NBD.
The surge in headline purchasing managers’ index was driven by faster new order growth and output growth last month, with firms attributing this to new projects, enhanced marketing initiatives and good quality products.
New export orders increased slightly in August after two months of decline, and firms highlighted improved demand from other GCC countries. Stocks of pre-production inventories also increased at a faster rate last month as output accelerated and as firms anticipated future demand.
The headline purchasing managers’ index is heavily weighted to the volume components of the survey, which is what it is designed to do as a proxy for real GDP growth. New orders and output account for 55 per cent of the headline index, with inventories accounting for another 10 per cent.
These components were all above 61 in August, significantly higher than the neutral 50 level and signalling very strong growth in the volume of goods and services ordered, sold and stored last month.
“Other components of the survey are more nuanced, and point to some strains in the economy. Employment, which accounts for 20 per cent of the headline index, has been relatively muted even with output and new orders surging. Nevertheless, there has been a modest pickup in jobs growth over the last three months,” Haque said.
On the downside, firms continued to face intense input cost pressures, which mainly emanated from higher purchasing costs according to underlying data. Firms’ margins continue to be squeezed as input cost inflation has been compounded by lower selling prices. The input price index rose to 54.1 in August from 53.2 in July and has averaged 52.9 year-to-date.
In contrast, output charges stabilised during August as firms were reportedly unable to pass on higher cost burdens amid intensive competition. This, however, ended a four-month sequence of falling output prices. Business sentiment remained positive despite dipping to the lowest in three months. Business confidence was rooted in projections of further improvements in market demand and economic conditions.