UAE’s Q2 PMI strongest since Q4 2014

Dubai: The UAE’s Purchasing Managers’ Index (PMI) data for the second quarter of 2019 showed the average reading for Q2 2019 was 58.2, the highest since Q4 2014.

This suggests that non-oil sector growth accelerated at the fastest rate in more than four years last quarter. For the month of June the PMI was at 57.7, down from May’s reading of 59.4.

“The recent PMI surveys indicate that growth in the UAE’s private sector has accelerated in Q2 2019. While firms have reported growth in output and new orders, this has come on the back of further price discounting. As a result, there has been no real boost to hiring as businesses remain focused on keeping costs down,” said Khatija Haque, Head of MENA Research at Emirates NBD.

The recovery in the PMI this year has been underpinned by faster expansion of output and new work, although this has come at a cost for many firms as selling prices continued to decline on average in June.

External demand has also contributed to the strong growth in new work in June, with new export orders rising at a record rate for the second month in a row. Panellists noted increased export orders from other GCC countries as well as further afield. However, firms continue to be reluctant to boost hiring in response to increased new work, as their margins are squeezed.

June data pointed to a sharp expansion of business activity, and one that was only slightly weaker than May’s survey record. Marketing activities were often reported as being behind the increase in overall activity, while economic conditions were also signalled as having improved.

A similar picture was seen with regards to new orders, with growth remaining substantial despite softening from the previous month. A number of panellists reported that competitive pricing had enabled them to secure sales, and this was reflected in a ninth consecutive monthly decrease in output prices.

Companies were able to offer discounts thanks to a lack of cost inflationary pressure. Overall input prices rose only marginally in June. Purchase costs increased slightly, while wages and salaries were broadly unchanged.

The recent trend of only marginal changes in workforce numbers continued in June, with almost all respondents seeing no change in employment during the month. As has been the case throughout the past two-and-a-half years, backlogs of work increased amid reports of delays in receiving payments from customers.

On average the employment index was fractionally below the “no-change” 50-level in H1 2019 despite the growth in activity and new work year-to-date. Staff costs also declined fractionally in June, pointing to excess supply in the labour market putting downward pressure on wages in the private sector.

Purchasing activity rose sharply in June, with the quantity of purchases index surging to a record high of 71.8 on a seasonally adjusted basis, on the back of strong growth in new orders and output.

Private sector businesses remain highly optimistic about future demand, although the future output index slipped from May’s record high. Nearly three-quarters of firms surveyed expected their output to be higher in June 2020, with many citing Expo 2020 as a reason for their optimism.