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UAE Economy expands at a steady rate in October: PMI

Despite moderating since September, the latest data signalled another marked improvement in business conditions across the non-oil private sector, with sharp growth in both output and new orders, says the latest Emirates NBD UAE Purchasing Managers’ Index.


Furthermore, business confidence accelerated to a record high, reflecting optimism towards Expo 2020 and new project wins. On the price front, input cost pressures sharpened to the greatest extent in six months whilst selling prices fell at a modest rate.


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 – fell to 55.0 in October, from 55.3 in the preceding survey. The latest expansion remained marked overall and above the historical average nonetheless.


“Non-oil private sector companies in the UAE reported another sharp increase in new business during October. Anecdotal evidence suggested that promotional activity was partly linked to the improvement. That said, new orders from abroad grew at the weakest pace since March,” the report said.


“Meanwhile, output increased at a weaker pace in the latest survey period. In fact, the rate of growth was the slowest in six months. The expansion remained sharp overall, however, and was linked to rising inflows of new business.


“Business confidence across the non-oil private sector hit its highest since the index began in 2012. Promotional activity, investment surrounding Expo 2020 and new product launches attributed to positive sentiment.”


On the price front, output charges fell in October following an increase in September. Respondents linked the fall to competitive pressures in the non-oil private sector. The rate of decline was modest overall and the fastest since July.


Khatija Haque, Head of MENA Research at Emirates NBD, said:


“The headline UAE PMI eased to 55.0 in October from 55.3 in September.  It has been broadly stable between 55 and 56 for the last four months, indicating growth in the UAE’s non-oil private sector at a similar rate to last year, when official GDP data showed the non-oil sector expanded 2.5 percent.


“Output growth slowed to the weakest in six months in October, despite relatively robust new order growth. Anecdotal evidence suggested that promotions and price discounts likely contributed to the rise in new orders last month.  Indeed, new export order growth also slowed sharply last month.


“Employment was broadly flat in October after declining in the prior two months. Staff costs, a good proxy for wages, were also largely unchanged last month. The softness in the labour market is at odds with output and new work growth.  However, the increased margin pressures in October likely contributed to firms’ reluctance to boost hiring.


“Margins were squeezed further in October as input costs rose while selling prices declined.  Input cost inflation was the fastest since April, on higher fuel and raw materials prices. Meanwhile, output prices declined at the sharpest pace in 3 months in October. Selling prices have declined on average in five of the last six months, as firms have had to compete for new business and to stimulate demand. 


“Business optimism about future output rose to a record high in October, with nearly 78 percent of firms surveyed indicating they expected their output to be higher in a year’s time. The surge in oil prices as well as announcements of increased government spending and Expo 2020 investment may have contributed to improved sentiment last month.


Input price inflation accelerated in the most recent survey period. The rate of inflation was the strongest since April. Nonetheless it remained below the long-run average.


Employment growth returned during October, thereby ending a two-month sequence of job shedding. Some firms linked the increase to rising output requirements. The rate of growth was only fractional, however.


Reflecting higher output requirements, firms increased their purchasing activity in October. The rate of expansion accelerated notably since September, and was the strongest registered since February.