The Emirates NBD Purchasing Managers’ Index (PMI) for the UAE rose to 55.8 in Q1 2017 from 54.2 in the previous quarter, the highest average PMI reading since Q3 2015. In March, the UAE PMI climbed to a nineteen month high of 56.2 from 56.0 in February. The main driver was output (62.7) which expanded at the fastest rate in twenty-five months. New orders (59.9) also rose to the sharpest rate in over one and a half years in Q1 2017, supported by record high rise in stock of purchases.
Reflective of increased output requirements, firms increased their staffing levels. The accelerated rise in output and new work has not had a material impact on job creation however. The employment index increased marginally to 51.5 in Q1 2017 from 51.2 the previous quarter. Staff cost pressures also remain contained. Subsequently, the rate of backlog accumulation edged up to a six-month high. Companies reported that higher demand had contributed to rising work outstanding.
Firms faced increased cost pressures amid a general rise in market prices due to higher demand for raw materials. The rate of overall input price inflation accelerated in Q1 2017. However, firms registered no change in output prices. Firms that raised charges passed on higher cost burdens to customers, while other firms reportedly offered discounts due to intense market competition.
The Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) also rose in Q1 2017 to 56.7 from 54.6 in the previous quarter, the highest PMI average in one and a half years. In March, the KSA PMI slipped from February’s eighteen month high of 57.0 to 56.4 last month. Both output and new orders rose sharply in Q1 2017 underpinning the overall upturn. Separately, firms also cited improvements in economic conditions, new projects, more construction work and increased promotional activity as reasons for the stronger growth in new work for Q1.
However, as in the UAE, the strong rise in output and new work was not reflected in faster job creation in Q1 2017. The employment index was close to the neutral level at 50.5 in Q1, marginally lower than last quarter’s reading. Perhaps unsurprisingly given the strong rise in demand combined with weak jobs growth, backlogs of work increased at the fastest rate since Q3 2015.