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Khatija Haque - Head of Research & Chief Economist
Published Date: 05 December 2017
The Emirates NBD Purchasing Managers’ Index (PMI) for the UAE rose to 57.0 in November from 55.9 in October, signalling a faster rate of growth in the non-oil private sector last month. The PMI reading was the highest since August, and the second highest reading this year. Output and new orders rose at a faster rate last month, despite an outright decline in new export orders. This suggests that the driver of growth is domestic demand.
The November survey confirms our view that the UAE’s non-oil sector will likely see strong growth in the fourth quarter of this year, as both households and business boost purchases before VAT comes into effect at the start of next year. However, job growth remains soft (the index slipped to 50.9 in November; a five-month low) and there is also little evidence of wage growth. The staff costs component of the survey has averaged 50.8 in the year to November, lower than the average for the same period in both 2015 and 2016. The muted employment and wage data suggests that any boost to household consumption this quarter will likely prove temporary.
Input cost inflation accelerated in November, on the back of higher purchase costs. However, firms were unable to pass on these higher costs, with average selling prices declining (albeit modestly) once again in November.
Purchasing activity and accumulation of pre-production inventories has been sharply higher year-to-date compared with last year. While some of this might be attributed to pre-VAT stockpiling, survey respondents indicated they had boosted inventories ahead of an expected upturn in sales.
The overall level of business optimism remained high in November, although the index slipped slightly from October to 59.2. Firms cited projects related to Expo 2020 as one reason for their optimism about the coming year.
Source: IHS Markit, Emirates NBD Research
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