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Daniel Richards - MENA Economist
Published Date: 03 August 2021
The UAE headline PMI survey rose to a two-year high in July, hitting 54.0, compared to 52.2 the previous month. The improvement was driven by a marked rise in both output and new orders, both of which were also at two-year highs as the economy continues to recover from the pandemic crisis. While there remain a number of constraints on the outlook for the UAE, we maintain our view that there will be a steady improvement in conditions through the course of the year, and we hold to our non-oil GDP growth forecast of 3.5% in 2021.
Source: IHS Markit, Emirates NBD Research
With most limits on activity in the UAE lifted, it is international restrictions that are weighing on the recovery now, and this was evident in the new order data from the survey. While new orders overall accelerated at their fastest pace since mid-2019, the new export orders sub-component recorded a third consecutive month of contraction as it came in below the neutral 50.0 level once again. It was, however, at a slower pace than in the previous month, and the majority of respondents saw no change.
Aside from international restrictions still putting the dampeners on activity in the UAE, the ongoing issues with international shipping and supply chains, caused by pandemic-related disruptions, are also still weighing on growth, as seen in PMI surveys from around the world. Delivery delays were the second-worst recorded in the series, while input prices rose at an elevated pace in July, driven primarily by higher purchase prices. Shortages of construction materials, and higher energy costs, drove the increase. Staff costs rose only moderately, but this was the fifth consecutive month that the sub-index was in expansion, a positive sign for the labour market. Employment was positive for a second consecutive month.
Saudi Arabia’s headline PMI number slipped in July, falling from 56.4 in June to 55.8. This remains a fairly robust reading compared with recent averages, however, and holds to our expectation of an improving growth outlook in the non-oil private sector in 2021. The slowdown in the data was fairly broad-based, with output and new orders expanding at the slowest pace since April. These were both fairly strong readings, however, and respondents cited the ongoing easing of pandemic-related restrictions (both at home and abroad) as driving the ongoing improvement.
Source: IHS Markt, Emirates NBD Research
Input prices rose once again in July, but at a far slower pace than seen in the previous two months, while Saudi Arabia’s delivery times have not suffered the same disruption seen elsewhere over the past several surveys. Indeed, supplier performance improved for a fourth consecutive reading, albeit at a slower pace than in May and June. The rise in input prices was driven by both higher purchase and staff costs, and this has driven output prices up also, which accelerated to the highest reading since November. Despite this we expect headline CPI inflation to fade through the course of H2 as the July 2020 VAT hike comes into the base.
Egypt’s PMI survey slipped to 49.1 in July. This was down from 49.9 in June, and was the eighth consecutive sub-50.0 reading in the survey, which has not indicated an expansion in the private sector since November. Both output and new orders returned to a negative reading after posting moderately positive levels in June, but there was positive news for new export orders which recorded a fourth consecutive positive month of growth, albeit slightly slower than in June. Respondents cited an ongoing improvement in global conditions.
Source: IHS Markit, Emirates NBD Research
One key positive takeaway from the Egyptian PMI survey was the employment sub-component, which rose above the neutral 50.0 level for the first time since October 2019. Staff costs rose for the fifth time in a row, further indicating an improvement in the labour market, although with purchase prices also continuing to rise, this will squeeze firms’ margins. Shipping, fuel, and shortages of goods were all mentioned as driving up costs for firms. Output prices rose again but at the slowest pace since March. Nevertheless, with inflationary pressures mounting, we expect the CBE to keep the benchmark overnight deposit rate on hold at 8.25% later this week.
Regional PMIs held up well in July
Dubai PMI at three-year high
PMIs show rising input costs in MENA