Weak demand growth prompts further price discounting

Dubai: UAE’s non-oil private sector economic activity moderated in September with output growth remaining relatively weak amid the slow increase in new orders.

Data from HIS Markit for September showed Purchasing Managers’ Index (PMI) slipped to 51.1 from 51.6 in August. A rating of above 50 indicates growth.

Weak demand growth prompted firms to respond with responded with another round of price discounting, despite a stronger increase in overall input costs indicating further margin compression.

Companies participating in the PMI survey noted that slowing market conditions led to a reduction in customer orders during the month. The slowdown was further evident in foreign sales, which grew at a subdued pace since February.

As a result, UAE companies reported another relatively weak uplift in private sector output during September.

“The UAE non-oil economy continued to lose steam at the end of the third quarter of 2019. After comparatively strong demand growth earlier this year, September data signalled the weakest monthly upturn in new orders in the survey history. Companies reported further competitive pressures, while also seeing a slowdown in customer movement despite sustained price discounting,” said David Owen, Economist at IHS Markit.

September data showed the vast majority of firms kept employment unchanged, while only a few companies hired additional workers on the back of higher output requirements.

Output prices at UAE companies were lowered over September. Latest data indicated a solid reduction in prices, the twelfth in as many months, and the fastest since April. This was commonly attributed to growing competitive pressures. Overall input prices faced by these firms increased modestly.

Business sentiment weakened at the end of the third quarter, with more than half of all respondents predicting unchanged output levels in 12 months’ time. However, many firms still hope that new order growth will rebound and lead to greater business activity.

“Sentiment eased to the lowest in seven months, but was still stronger than the series average, with the Expo 2020 remaining a key source of optimism among panellists,” said Owen.