UAE PMI: A strong Q4

The UAE’s PMI slipped slightly in December to 55.6 from 55.9 in November.  Business output accelerated sharply in December, at the fastest rate since July 2019, as firms reported higher demand on the back of Expo 2020 and – according to some firms - relaxation of some Covid-19 rules.  New order growth was also very strong, but slightly slower than the recent high recorded in November. New export order growth was the weakest in four months, providing further evidence that domestic rather than foreign demand has been the main driver of growth in recent months.

Nevertheless, concerns about the spread of the Omicron variant weighed on business sentiment in December.  The future output index fell to 56.8 last month, a three month low. This may have been a factor deterring hiring - employment increased slightly in December but private sector job growth remains relatively soft considering the surge in business activity and new work in H2 21. This has likely contributed to the increase in backlogs of work over the period. 

Input costs for firms rose at the fastest pace in four months in December, with panellists citing higher energy and fuel prices as well as more expensive raw materials and shipping costs. Supplier delivery times continued to improve however.  Staff costs were largely unchanged last month.  Despite higher input costs, firms reduced selling prices on average for the fifth consecutive month.

Even with the lower December PMI reading, the average PMI for Q4 2021 was the highest since Q2 2019, which supports our view that the UAE economy likely saw faster GDP growth in the final quarter of last year.  While the near-term outlook is clouded by the surge in coronavirus cases, the UAE’s high vaccination rate and relatively young population stand it in good stead to be able to withstand the current wave of infections without needing to reimpose the strict measures implemented in Q2 2020. While growth may slow somewhat in early 2022, we think the non-oil sectors will expand by 4.0% this year.

UAE PMI and key survey components

Source: IHS Markit, Emirates NBD Research