PMI data reveals: UAE’s non-oil economy displays strong growth

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During the initial stages of the second half of 2023, the UAE’s non-oil economy displayed robust growth. Companies ramped up their operational levels notably, leading to increased recruitment and higher procurement of resources. This vigorous expansion in output coincided with a marked uptick in sales, although the pace moderated due to competitive pressures. Companies managed to reduce their selling prices again, supported by diminished inflation in input costs and sufficient inventory reserves.

The seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI), a comprehensive gauge crafted to evaluate the operational environment within the non-oil private sector economy, saw a decline from 56.9 in June to 56.0 in July. Nonetheless, it comfortably maintained its position above the pivotal 50.0 mark, denoting no change and surpassing the series’s long-term average. This indicates a notable enhancement in the sector’s condition, propelled by substantial growth in output.

While the growth rate in activity tapered from the recent peak observed in June, it remained significant at the commencement of the third quarter. Approximately 30 percent of survey participants noted an upswing in output, in stark contrast to the less than 2 percent reporting a decline.

The upsurge in activity stemmed from a rise in new orders, which continued to be fueled by robust customer demand and improving market conditions, as indicated by the survey participants. However, growth has witnessed a moderation since June, with the corresponding index experiencing one of its most significant declines in the series’ history (dating back to 2009). Anecdotal evidence indicated that several companies encountered heightened competition, impacting their sales. Conversely, new export orders maintained a relatively steady stance.

David Owen, Senior Economist at S&P Global Market Intelligence, commented on the latest PMI data, noting a slight adjustment in the vigor of the UAE’s non-oil economy in July. He highlighted that new business growth had eased from its four-year high in June, subsequently leading to a reduction in output expansion. Nonetheless, the headline PMI figure of 56.0 underscored the sector’s overall robust condition. Market conditions continued to enhance, and companies reported strong rates of both customer demand growth and job creation.

The considerable surge in new orders prompted companies to undertake a moderate expansion of their workforce. However, a noteworthy escalation in work backlogs occurred, driven by a combination of demand pressures, project postponements, and delays in both client payments and shipments. This upswing in backlogs marked the most substantial increase since March 2020.

Non-oil enterprises also saw an enhancement in the timeliness of supplier deliveries, driven by their requests for swifter arrival of inputs from vendors. This development prompted companies to raise their procurement of inputs and bolster inventories, albeit at the slowest rate observed in four months.

“At the start, the findings from July indicate that the UAE’s non-oil sector will sustain its expansion trajectory in the latter half of this year,” Owen remarked. “However, the notable moderation in sales growth, if sustained in the coming months, implies that the peak of the demand surge might have been reached.”

In July, companies also registered a decline in cost pressures as the overall inflation of input prices reached a three-month nadir, maintaining a marginal impact. Reduced commodity prices and lower freight costs played a role in curbing supplier price escalations, alongside a noticeable alleviation of salary pressures.

This abatement in inflationary stress prompted another round of price reductions in July. Selling prices declined at a moderate pace akin to June, as companies extended special offers to clients in response to competitive pressures.

Lastly, the outlook for output in the forthcoming year exhibited positivity in July, marking its second-highest level in just over a year. Survey participants frequently grounded their growth projections on improving economic circumstances and more robust marketing and sales pipelines.

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