Khatija Haque - Head of MENA Research
Published Date: 05 March 2017
The Emirates NBD Purchasing Managers’ Index (PMI) rose to 56.0 in February from 55.3 in January, a level last seen in September 2015. The main driver was output (63.0), which expanded at the fastest rate in eighteen months. New orders (59.9) also rose at a faster pace in February, supported by improving external demand.
The accelerated rise in output and new work has not had a material impact on job creation however. The employment index eased to 51.3 in February from 51.9 in January. Staff cost pressures also remain contained.
Encouragingly, average selling prices increased in February (albeit only modestly), with this index rising to 51.1. This is the first reading over 50.0 for output prices in the UAE since October 2015. Input price inflation eased slightly in February, providing further relief for profit margins last month, but input costs continued to rise at a faster rate than output prices.
Firms increased their purchasing activity in February, in anticipation of future demand. Inventories rose at the fastest rate in five months. Firms remain upbeat about the outlook for new work over the next year, with the business optimism index also rising to a five-month high in February (59.7).
While demand appears to have rebounded in the first two months of 2017, there still appears to be excess capacity in the non-oil private sector. The backlogs of work were largely unchanged from January and suppliers’ delivery times continue to shorten.
In our view, the relative stability of oil prices in the USD 50-55/b range over the last three months has likely contributed to the improving sentiment and business activity in the non-oil private sector. The announcement of new projects has also helped to underpin growth since the start of this year. Overall, we expect real GDP growth to accelerate to 3.4% this year from an estimated 3.0% in 2016.
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Relative Value in Sukuk