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Khatija Haque - Head of Research & Chief Economist
Published Date: 03 May 2018
The Emirates NBD Purchasing Managers’ Index (PMI) for the UAE rose to 56.5 in May from 55.1 in April, on the back of stronger growth in output and new orders last month. The output index was back above 60 for the first time since January, while new orders rose to a five-month high. Export orders contributed to the overall increase in new orders in May, with the export orders index rising to 55.4, the highest reading since November 2015. Some respondents cited stronger demand in neighbouring GCC states as contributing to the boost in exports.
Employment increased modestly on average in May, with this index rising to 51.2 from 50.7 in April. Most firms surveyed reported no change in employment however. Staff costs increased only marginally in May, with this index easing to 50.9 from 52.4 in April.
Input cost pressures also eased in May, but firms offered significant discounts and promotions, with average selling prices falling the most since March 2010. Several firms indicated that the promotions were intended to stimulate client demand.
This is important to keep in mind when looking at the relatively strong headline PMI reading, as it shows that firms are seeing margins being squeezed in order to maintain order pipelines and output growth. The pricing pressure is not captured in the headline PMI index, which is composed of output, new orders, employment, inventories and suppliers’ delivery times, but it reflects the challenging operating environment and pressure facing many firms to boost efficiency and focus on cost savings.
Overall, the PMI reflects a solid rate of growth in the non-oil private sector of the UAE so far this year. We expect the non-oil economy to grow at a faster rate this year relative to 2017, despite our recent downgrade on headline GDP growth for 2018 (to 2.2% from 3.4% previously). The downgrade was due to lower than oil production estimates this year, not slower non-oil sector growth.
Source: IHS Markit, Emirates NBD Research
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