Smooth sailing for UAE business amidst turbulent winds
HSBC’s United Arab Emirates Purchasing Managers Index (PMI) for August signalled a continued expansion of the UAE non-oil private sector economy. Output, orders and employment all continued to rise, while there was further stock accumulation as companies retained positive forecasts for growth.
Input costs continued to increase, led primarily by rises in the prices of purchases, but there was a fractional fall in output charges as companies strove to remain competitive and stimulate increased volumes of new business.
The headline seasonally adjusted HSBC United Arab Emirates PMI™ – a composite indicator designed to provide a single-figure snapshot of the performance of the non-oil private sector – recorded a level of 53.3 in August. That reading was little changed on July’s 53.4 and was indicative of a solid improvement in operating conditions during the latest survey period.
Production levels rose for a thirty-first successive month during August. Growth was solid, edging up only slightly on July’s four-month low, as higher volumes of incoming new business encouraged companies to raise activity.
Total new orders rose at the sharpest rate for three months in August amid reports of improved market conditions, firm demand and higher sales efforts. Growth of new orders was not limited to the domestic market as sales to foreign markets were reported to have risen in August. Moreover, the rate of increase improved markedly on the 25-month low seen in July.
With order book growth continuing to outstrip that of output, backlogs of work increased in August (albeit slightly). As resources showed signs of being stretched, companies attempted to keep on top of rising workloads by hiring additional staff. In line with the trend throughout almost all of the survey history, payroll numbers continued to increase although the rate of growth was the slowest since April.
UAE non-oil private sector companies increased their purchasing activity during August. Solid growth reflected increased sales and the start of new projects. Companies were also able to add to their stocks of purchases, and to the sharpest degree for 15 months amid evidence of positive expectations for sales and output growth. Despite higher demand for inputs, vendors were able to deliver to quicker time scales. Prompt payments, the use of quality suppliers and market competition all helped to support an improvement in vendor performance.
Although market demand remained positive, strong competitive pressures encouraged slight price discounting amongst UAE non-oil private sector companies for the second time in the past three months.
In contrast, total cost inflation accelerated, as input price inflation accelerated to a three-month high. Staffing costs also rose at a stronger rate (the sharpest for 14 months), although wage inflation remained below that of purchase prices.
Commenting on the UAE PMI survey, Liz Martin, Senior Economist for Middle East & North Africa at HSBC said, “It's a very solid number compared with much of the world, and what's particularly encouraging is the bounce in the new export orders index, after a somewhat worrying drop in July. Of course we remain concerned about the impact of the weak global demand climate, but these numbers suggest continued resilience so far.”