Dubai: The Emirates NBD Purchasing Managers’ Index (PMI) for the UAE increased to 55.8 in June, up from 54.3 in May, on the back of faster output and new order growth last month.
The latest improvement was supported by sharper rises in both new orders and output. The ongoing upturns in output and new order book volumes encouraged companies to engage in input buying, leading to further increases in inventories.
“The rise in output and new orders in June is encouraging, although we note that firms continued to reduce selling prices on average in order to support demand and order growth. The survey also highlights the lack of employment growth despite strong the strong increase in new work last month. Overall however, the PMI data for [the first half of] 2017 supports our view that the non-oil sectors have grown at a faster pace relative to [the first half of] 2016,” said Khatija Haque, head of Mena Research at Emirates NBD.
Remaining comfortably above the crucial 50 threshold, the latest PMI reading signalled a sharp improvement in the health of the private sector. Notably, the rate of growth was stronger than the long-run series average of 54.5.
Data showed firms continued to discount selling prices in order to support order growth, with average selling prices declining for the third consecutive month.
Firms also cited increased marketing efforts as contributing to new order growth.
As employment stagnated, new export orders fell for the first time in seven months as demand from international markets reduced.
“This is disappointing against a backdrop of strong rises in output and new orders, and supports the view that firms are reluctant to boost hiring in an environment where their margins continue to be squeezed,” Haque said.
Business confidence towards the 12-month outlook eased to the second-lowest in the survey history. Following a decline in the prior month, there was a renewed increase in input costs.
External demand softened slightly in June, with new export orders declining marginally. While businesses are optimistic about the coming year, the business optimism index fell to 56.5 in June, the second-lowest level on record.
Just under 13 per cent of firms expected output to be higher in 12 months’ time, compared to 23.6 per cent in May. Nevertheless, stocks of purchases (pre-production inventories) increased sharply in June, with this index rising to 57.3 from 54.7 last month, suggesting that firms do expect output and new work to remain strong in the coming weeks.
The average PMI reading for the second quarter of 2017 was 55.4, only marginally softer than the first quarter and consistent with a strong rate of non-oil private sector growth in the UAE.
“The second-quarter 2017 PMI reading is also much higher than that for the corresponding quarter last year, confirming that non-oil growth has likely accelerated [year-on-year], in line with our expectations. However, the extension of Opec’s oil production cuts through second half of 2017 and first quarter of 2018 has led us to downgrade our forecast for the UAE’s real GDP growth to 2 per cent this year, down from 3 per cent in 2016,” Haque said.
The downgrade is entirely due to the projected contraction in oil production, which is not captured in the PMI survey.