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UAE’s non-oil private sector growth spikes

The UAE’s non-oil private sector output and new orders in June rose at their fastest pace this year, indicating a strong improvement in the overall health of the economy, according to the Emirates NBD Purchasing Managers’ Index (PMI).
The PMI for June rose to a 2018 high of 57.1, up from 56.5 in May, as both new export orders increased for the third month in a row but at a slightly slower rate than in May.

Output growth across the non-oil private sector accelerated to a seven-month high during the June survey. Rising output has been recorded continuously since February 2010.

Despite the surge in business activity and new work, employment was broadly unchanged in June, with less than 1 per cent of firms surveyed indicating they had hired new workers last month.

“The headline PMI rose to a 2018-high in June, reflecting a sharp increase in both export and domestic new orders as well as output. In spite of this strengthening demand, there was almost no job growth or increase in wages in the UAE’s private sector last month, as firms continued to focus on efficiency and cost containment,” said Khatija Haque, head of Mena Research at Emirates NBD.
As a result of strong new order growth and no increase in employment, the backlogs of work surged in June, with this index rising to 59.8, the highest reading in the nearly 10-year history of the series.
Capacity constraints
Backlogs have been rising at a faster pace since February this year, indicating capacity constraints in the non-oil private sector are being reached.
“In our view this is unsustainable, and we expect firms to boost hiring in the third quarter if new work continues to rise as strongly as it has in recent months,” said Haque.

Promotional activity, business investment and solid client demand from both domestic and export markets was linked to June’s steep expansion of new order books.
The rate of growth was the strongest in the year to date. Reflecting a sharp improvement in new business and easing job creation, backlogs of work increased at a record pace in June.
Some of the strong demand recorded in June was partly due to competitive pricing and promotions, as average selling prices declined again in June, although to a lesser extent than in May.
Input cost inflation also moderated, rising at its slowest rate since May 2017.
In the context of rising new orders, easing price pressure and the recent announcements of fiscal stimulus and higher oil prices, firms remain highly optimistic about future order growth.
Nearly 70 per cent of all firms surveyed in June expected their output to be higher in 12 months’ time, compared with just 14.5 per cent in the February survey.
“Overall, the June survey data supports our view that the UAE’s non-oil sectors will see faster growth this year relative to 2017. Moreover, the decision by Opec to increase oil output in the coming months is likely to be reflected in higher oil production by the UAE in the second half, which poses upside risks to our oil sector and total GDP forecast for 2018,” Haque said.

Source: Gulf News

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