New orders, rising output improve business conditions in UAE


Staff Report

Dubai – Following May’s weakest improvement in six months, the upward growth trajectory of the non-oil private sector gained steam in June. The latest improvement was supported by sharper rises in both new orders and output.
The ongoing upturns in output and new order book volumes encouraged companies to engage in input buying, leading to further increases in inventories. Meanwhile, problems existed elsewhere as employment stagnated.
New export orders fell for the first time in seven months as demand from international markets reduced. Business confidence towards the 12-month outlook eased to the second-lowest in the survey history. Following a decline in the prior month, there was a renewed increase in input costs. In spite of increased cost pressures, firms continued to offer discounts amid reports of intense competition.
The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.

Commenting on the UAE PMI survey, Khatija Haque, Head of MENA Research at Emirates NBD, said: “The rise in output and new orders in June is encouraging, although we note that firms continued to reduce selling prices on average in order to support demand and order growth. The survey also highlights the lack of employment growth despite strong the strong increase in new work last month. Overall however, the PMI data for H1 2017 supports our view that the non-oil sectors have grown at a faster pace relative to H1 2016.”

Key Findings:
 Headline index increases to 55.8 in June
 Sharper expansions in output and new orders
 New export orders fall for the first time in seven months

The headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – rose from May’s six-month low of 54.3 to 55.8 in June. Remaining comfortably above the crucial 50.0 threshold, the latest reading signalled a sharp improvement in the health of the private sector. Notably, the rate of growth was stronger than the long-run series average (54.5).
The general improvement in operating conditions was closely linked to a sharper increase in output during June from May’s 13-month low. The combination of more projects, trends in new orders and favourable economic conditions was reported by panellists to have contributed to greater business activity.
Moreover, growth in new orders quickened from May’s five-month low to the fastest pace since August 2015. Firms linked the rise in new business to discounts and greater marketing efforts.
In response to greater output requirements, companies raised purchasing activity at a sharp pace. As a result, inventories rose at a steep pace. Firms mentioned forecasts of greater new work as the key reason behind the latest rise in inventories.
The rate of job creation eased to an eight-month low to signal a broad stagnation in employment.
Output charges decreased in June as firms were unable to pass on higher cost burdens to customers amid reports of intense competition. Input prices rose following a decline in May, although the rate of inflation was only modest. Input costs were mainly driven higher by a general increase in market prices for raw materials, according to panellists.
Positive sentiment towards business prospects eased to the second-weakest in the survey history. Firms expect projects in the pipeline, and further improvements in economic conditions will lead to output growth in the year ahead.