Paolo Soro

UAE PMI at 17-month high on higher output and demand

Business optimism at a five-month high in February.

The non-oil private sector economic activity in the UAE witnessed further improvement last month supported by sharp increase in inflows of new work and a robust expansion of output.

The Emirates NBD Purchasing Managers’ Index (PMI) rose to 56 in February from 55.3 in January, a level last seen in September 2015. Strong demand conditions and a favourable economic environment encouraged companies to scale up purchasing activity and hire additional workers over the month.

The main driver for the improvement in PMI was a surge in output (63), which expanded at the fastest rate in 18 months. New orders (59.9) also rose at a faster pace in February, supported by improving external demand.

“The rise in the UAE PMI to the highest level since September 2015 suggests that demand has strengthened, both domestically and abroad. Higher oil prices have likely contributed to improved sentiment and business activity over the last few months,” said Khatija Haque, head of Mena research at Emirates NBD.

New business inflows rose sharply and at the fastest rate since September 2015, which survey participants linked to strong underlying demand and better economic conditions. With new export orders expanding markedly over the month, companies raised output further. Greater output requirements encouraged firms to purchase more inputs and hire extra staff. Buying levels increased to the greatest extent since last September, whereas the pace of job creation softened to the weakest in four months.

The rise in output and new work has not had a material impact on job creation however. The employment index eased to 51.3 in February from 51.9 in January. Staff cost pressures also remain contained.

PMI data showed that the average selling prices increased modestly in February, with this index rising to 51.1. This is the first reading above for output prices in the UAE since October 2015. Input price inflation eased slightly in February, providing further relief for profit margins last month, but input costs continued to rise at a faster rate than output prices.

Firms increased their purchasing activity in February, in anticipation of future demand. Inventories rose at the fastest rate in five months.

The survey results showed that the UAE non-oil private sector companies expect the favourable economic scenario to be sustained over the coming 12 months, with one in five companies forecasting output growth in the year ahead. In fact, the level of positive sentiment was at a five-month high in February. Optimism reportedly reflected aggressive marketing campaigns, strong demand and new projects in the pipeline.

Firms remain upbeat about the outlook for new work over the next year, with the business optimism index also rising to a five-month high in February (59.7).

Data shows that while demand appears to have rebounded in the first two months of 2017, there still appears to be excess capacity in the non-oil private sector. The backlogs of work were largely unchanged from January and suppliers’ delivery times continue to shorten.

“In our view, the relative stability of oil prices in the $50-55 per barrel range over the last three months has likely contributed to the improving sentiment and business activity in the non-oil private sector. The announcement of new projects has also helped to underpin growth since the start of this year. Overall, we expect real GDP growth to accelerate to 3.4 per cent this year from an estimated 3 per cent in 2016,” said Haque.

Source: Gulf News

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