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Business conditions improve slightly in September

Business conditions in the UAE improve slightly in September, according to the Emirates NBD UAE Purchasing Managers’ Index (PMI).


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 – rose to 55.3 in September, up from 55.0 in August. Scoring well above the 50.0 no-change threshold, the figure signalled an improvement in business conditions across the non-oil private sector.


September data indicated a further rise in output across the UAE’s non-oil private sector. Whilst the rate of growth remained sharp and above the historical average, it did slip to a five-month low in the latest survey.


Inflows of new business improved during September. The rate of growth was steep and above that recorded in August. Survey data inferred that part of the increase in growth was driven by stronger foreign demand, which increased for the sixth month running.


Payroll numbers across the non-oil private sector decreased for the second month running in September, the first consecutive monthly decline in employment since the survey’s inception. Nonetheless, the rate of job shedding eased since August and was only marginal overall.


Partly reflecting an uptick in new order growth and falling employment levels, backlogs of work continued to build at an elevated pace during September. The finding thereby stretched the current sequence of rising work outstanding to 21 months.


Average cost burdens rose during September, following unchanged input prices in the preceding survey period. Both average purchase prices and staff bills increased. The rate of inflation was only slight overall, however.


Output charges across the non-oil private sector rose during the latest survey. The rise followed a four-month sequence of falling selling prices.


Business confidence remained strong in the latest survey period. Projects related to Expo 2020, successful new product launches and planned business expansions underpinned optimism towards future growth prospects.


Khatija Haque, Head of MENA Research at Emirates NBD, said: The headline UAE PMI stood at 55.3 in September, the third month in a row with a reading at the 55-handle. This signals a steady expansion in the non-oil private sector in the third quarter of 2018. Year-to-date, the PMI averaged 55.7, similar to the same period last year. Although output and new work rose sharply in September, supported by growth in export orders, employment remained below the neutral 50-level for the second consecutive month. The majority of firms reported no change in staffing in September but nearly 2 percent of firms indicated a decline in jobs last month. Staff costs (a proxy for wages) were also largely unchanged last month.


“Stocks of pre-production inventories were slightly higher in September after declining in August. Over the last four months, inventory levels have been unchanged on average, suggesting that firms are either much better at managing their stocks or they are reluctant to build up inventory; i.e. indicating softer expected demand in the coming months. The business optimism component of the survey showed that most firms surveyed (62%) expect output to be higher in a year’s time, fewer than in the August survey. 


“Input costs were slightly higher in September (51.2), but the rate of producer inflation has slowed markedly since January when VAT pushed the index up to 57.4. Selling prices were unchanged in September (50.2) after declining on average for the previous four months.


“Backlogs of work rose again in September – unsurprising given strong output and new work growth with no increase in employment – but at the slowest pace since May. The PMI survey data so far this year suggests to us that the non-oil sector in the UAE is growing at a similar pace to last year, when official statistics showed non-oil GDP growth of 2.5 percent.”