Rising output, new orders lift UAE business morale to 8-month high

The level of business confidence in the UAE climbed in May to its highest level since September 2016, with market pundits forecasting growth in output.

Emirates NBD Future Output Index rose to its highest level since September 2016. "Many panellists are expecting to observe an increase in projects and improving economic conditions, with planned promotional activities expected to bolster market demand," the largest Dubai-based lender said in its latest market survey report.

"There was a further improvement in the health of the UAE's nonoil private sector during May, with growth underpinned by rises in output and new orders. Although rates of expansion eased in both cases, they remained sharp," the bank said.

May data signalled a further increase in business activity at the non-oil private sector firms. Though the rate of expansion eased to the weakest in 13 months, it was sharp overall. Approximately 16 per cent of firms registered higher output growth in May, with firms widely linking this to strong underlying demand conditions and new projects.

After a seven-month sequence of inflation, the UAE's non-oil private sector faced lower input costs while firms offered discounts to their own clients for the second successive month, the bank said in a survey report.

The headline seasonally adjusted Emirates NBD UAE Purchasing Managers' Index (PMI) - a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy - edged down from 56.1 in April to 54.3 in May.

"Though the latest reading eased to a six-month low, it signalled a robust rate of expansion of the non-oil private sector. Notably, the latest figure was broadly in line with the long-run average. New business inflows rose sharply in May, despite the rate of growth easing to a five-month low," said the survey report of business conditions in the UAE non-oil private sector, sponsored by Emirates NBD and produced by IHS Markit.  

Khatija Haque, head of Mena Research at Emirates NBD, said the decline in the headline PMI reading in May comes off very high readings from February through March. "The data still shows a solid expansion in output and domestic demand in May, although external demand appears to have softened."

The bank survey revealed that there were signs of weakness in client demand in external markets as new export orders rose only marginally. The upward movement in the headline PMI was also supported by greater business activity, which rose at a sharp, albeit slightly weaker rate.

The report noted that employment continued to rise across the non-oil private sector in May as companies hired extra staff in response to greater output requirements. Nevertheless, employment rose at the weakest rate in seven months, said the report.

Capacity pressures showed signs of easing, as evidenced by only a marginal rise in backlogs, said the report. "With market demand increasing, firms were encouraged to engage in input buying. Furthermore, the rate of expansion accelerated from the preceding month and was robust overall. As a result, preproduction inventories continued to increase," said the bank.

The report noted that in both cases, there were reports of forecasts of stronger sales growth. After seven successive months of inflation, firms faced lower input costs in May. The rate of decline was marginal, however. Some survey respondents reported higher raw material costs, but this was offset by others citing strong competition among suppliers. In the absence of substantial cost pressures, and faced with intense competition, companies lowered their charges for the second consecutive month, the bank said.

In the first quarter, confidence in the UAE rebounded strongly, with the employment component up on the previous quarter and government spending still at elevated levels, according to the Association of Chartered Certified Accountants and Institute of Management Accountants.

The Acca report noted that the UAE's performance would be reinforced by increased government spending and a pick up in construction activity in the run-up to World Expo 2020 in Dubai.

Source: Khaleej Times