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Khatija Haque - Head of MENA Research
Published Date: 10 June 2019
The Emirates NBD Purchasing Managers’ Index (PMI) for the UAE rose to the highest level since October 2014 last month, posting 59.4 on the back of faster growth in output/ activity and new work. Output rose at the fastest rate on record in May, as did new export orders. The improvement in overall demand was thus partly due to external demand, particularly from Saudi Arabia and Oman.
Price discounting likely also supported the strong growth in new work and output last month. Selling prices declined for the 8th month in a row, highlighting the competitive environment that businesses are facing. While input cost pressures were relatively muted last month, firms have consistently seen their margins being compressed, encouraging them to find cost savings through more efficient management and processes.
As a result, there has been no job growth in the UAE’s private sector year-to-date. The average for the employment index is fractionally below the “no-change” 50-level in the year to May. Indeed, the May reading was just 50.1, compared with 56.1 in October 2014. Fewer than 1% of firms surveyed in May reported increasing their employee headcount, while 53% reported higher output and 46% reported increased new work. Staff costs (wages) were also broadly unchanged last month as they have been for the last year.
The headline PMI in May was also boosted by rising stocks of inventory – this component of the PMI rose to the highest level in more than a year. This reflected both increased activity as well as anticipation of future sales growth. Indeed, business optimism remained near the series high reached in April, easing only fractionally to 90.2 in May.
While the rise in the headline PMI indicates faster GDP growth in the UAE’s non-oil private sector, the environment remains a challenging one for businesses. A higher PMI should not be confused with improving profitability. More important in our view is that the rebound in activity this year has not yet translated into job growth, or higher wages. This is likely to weigh on expat population growth and household consumption.
Source: IHS Markit, Emirates NBD Research
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