UAE private sector stays strong on higher demand
STEEP PRICE DISCOUNTING POINTS TO CHALLENGING BUSINESS ENVIRONMENT
The UAE’s non-oil private sector continued to report strong output growth in November, with Purchasing Managers’ Index (PMI) rising to 55.8 in November from 55 in October.
The average PMI with just one month left in the year is 55.7, marginally lower than the 55.9 recorded in the same period last year, signalling growth in the non-oil private sector at a similar rate to 2017.
Official data showed the UAE’s non-oil sector grew 2.5 per cent in 2017. The Quarterly Economic Review of the Central Bank of the UAE for the third quarter of 2018 projected the non-oil GDP in excess of 3 per cent for the whole year, while in the second and third quarters of the year the private sector grew 3.3 and 3.2 per cent, respectively.
PMI data for November showed domestic demand and new orders were supported by price discounting. “Selling prices in the UAE fell at the fastest rate since the 2009 recession in November, with the output price index declining to 47 from 48.7 in October,” said Khatija Haque, head of MENA Research at Emirates NBD. “Input costs rose at the fastest rate since January even as firms were cutting output prices indicating the challenging business environment and the pressure this is putting on firms to compete on price.”
Data suggests that price discounting helped firms to secure new work during November. Decline in output prices was recorded in spite of a pick-up in the rate of cost inflation. Overall input prices rose to the greatest extent since the introduction of VAT in January.
The rise in overall input costs was driven by higher purchase prices, linked in turn to increased raw material costs and higher wholesale prices.
Higher optimism
Despite sustained growth in output, private sector job creation continued to remain sluggish, with the employment index rose marginally to 50.6 in November from 50.1 in October. But the majority of firms (94.2 per cent) reported unchanged headcount last month. The 3.1 per cent of firms who reported increased hiring attributed this to higher workloads.
“Steep price discounting combined with other marketing efforts helped domestic demand, and both output and new work rose at a faster rate last month, compared to October,” said Haque. “Firmer export demand also contributed to overall new orders growth in November, with new export orders rising at the fastest pace in four months. Some businesses reported increased orders from other GCC countries.” Staff costs were only marginally higher in November, with just 1.4 per cent of respondents saying they had increased wages and salaries. Purchasing activity in private sector firms increased sharply in November, as firms responded to increased new orders and output requirements. However, the overall level of inventories was unchanged, suggesting that firms are unwilling to invest in pre-production goods until they are actually required. Optimism on future output was near series high, although it dipped from October. 75 per cent firms surveyed expected output to be higher in a year’s time, compared to 6.7 per cent who predicted lower output.