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The S&P Global UAE PMI rose to a three-month high of 56.7 in September, up from 55.0 in August. The improvement in business conditions was driven by a sharp rise in both business activity and new orders. In particular, new export orders rose at the fastest pace in more than four years.
Input costs rose at the sharpest rate since July 2022, as firms reported increased demand for raw materials and “inflationary pressures”. Staff costs were largely unchanged last month. Despite higher input costs, average selling prices declined again in September, as some firms offered promotions to support demand.
Overall the PMI survey data points to solid non-oil growth in Q3 2023, and firms were upbeat about the outlook for the coming 12 months. The future output index rose to 64.8 in September, the highest level since just before the Covid-19 pandemic, with almost 30% of firms expecting their output to rise over the coming year, and the remainder expecting no change.
The Riyad Bank Saudi Arabia PMI also rose last month to 57.2 from 56.6 in August. As with the UAE, business activity and new order growth underpinned the improvement. However, new order growth was driven by domestic demand as new export orders declined slightly for the second consecutive month in September.
Price discounting may have contributed to the robust domestic new work growth in September, as firms reduced selling prices on average despite another rise in input costs. Pressure on margins has increased over the last few months, as firms have been unable to pass on rising raw material and staff costs to buyers.
Firms were more optimistic about the outlook for the year ahead than in August, with almost 20% of firms expecting their activity to rise over the period. Improving economic conditions and stronger customer demand was expected to drive activity growth over the next 12 months.
The average PMI reading for Q3 was slightly lower than in the first two quarters of 2023, but still consistent with solid growth in the non-oil sectors of the economy. We expect non-oil GDP growth of around 5% this year, similar to that achieved in 2022.
The S&P Global Egypt PMI fell to 48.7 in September from 49.2 in August, the lowest reading since May, as business activity and new orders declined last month. High inflation was cited as a key factor behind weak customer demand – consumer inflation accelerated to a record high of 37.4% y/y in August. Meanwhile, difficulties in acquiring raw material imports also led to a rise in the backlogs of work, as firms were unable to fulfil existing orders.
Price pressures remain high, with the overall input price index coming in a 61.4 in September, only slightly lower than in August. Staff costs increased modestly last month, but the main driver of higher input prices was the cost of purchasing raw materials. This was attributed to the weak exchange rate as well as the higher cost of materials such as wood, iron and petroleum. Most firms passed on some of these higher costs to buyers, with selling prices rising again in September, albeit to a smaller degree than the rise in input prices.
Business optimism was slightly softer in September, with the future output index slipping to 53.0 from 53.7 in August. Operating conditions remain challenging for many firms, and some survey respondents remain concerned about price pressures, liquidity, and challenges faced in securing imports.
Emirates NBD Research
