2019: Good start for UAE businesses

Dubai - Companies remain confident about further improvements in new orders.

With rates of expansion in output and new orders accelerating amid reports of stronger market demand in January, non-oil businesses in the UAE experienced a strong start in 2019, according to a survey report by Emirates NBD.
In general, companies remained confident that further improvements in new orders would result in continued growth of business activity over the coming year. While some firms indicated that price discounting had helped them to secure greater new work volumes, output prices decreased for the fourth month running amid competitive pressures and relatively weak cost inflation.
The Emirates NBD Purchasing Managers' Index survey compiled by IHS Markit said activity grew at the strongest pace since August last year. The rate of expansion was also faster than the series average. Where output increased, panellists linked this to higher new orders, as well as marketing and promotional activity.
The survey's upbeat findings are in line with International Monetary Fund's observation that non-oil growth in the UAE would expand further in 2019 and 2020 on the back of fiscal stimulus and fast-track preparations for Expo 2020 Dubai.
The global financial institution has predicted that the non-oil sector will grow faster in 2019 than the oil sector despite some recovery in crude prices.
"The Emirates NBD Purchasing Managers' Index for the UAE rebounded to 56.3 at the start of 2019, after a disappointing December reading of 54.0. The January PMI was the highest in seven months, and signalled a good start to the year for the non-oil private sector," said Khatija Haque, head of Mena Research at Emirates NBD.
"The main driver for the higher headline index in January was faster output growth, and the new orders index increased as well," said Haque.
The improvement in business activity was partly due to promotions and price discounting by firms. The output price index remained below the neutral 50-level in January, signalling another month of lower average selling prices in the UAE, although the extent of price discounting in January was slight. Selling prices have declined for eight of the last nine months. Input costs rose only modestly in January.
Higher activity requirements led companies to take on extra staff during January, said the report.
With firms responding to stronger order growth and increased output, purchasing activity was robust in January. However, the stock of pre-production inventories declined for the second month in a row, suggesting that firms are managing their inventories more efficiently, and not building up stocks in anticipation of future demand.
With more than 68 per cent of firms expecting their output to be higher in a year's time. None of the firms surveyed expected output to be lower in a year's time, business optimism about future output remained high in January, said Haque.
The report said business sentiment remained elevated in January, strengthening from that seen in December as more than 68 per cent of respondents forecast a rise in activity over the coming year. Recent improvements in demand are expected to continue, while marketing activities are predicted to bear fruit during 2019. Confidence was among the highest since the series began in April 2012, said the bank.
New research from Old Mutual International and Quilter Investors shows investors in the UAE may be susceptible to over-estimating the potential for investment growth in the coming year. When respondents were asked to estimate their expected investment return in the coming year, a quarter (24 per cent) expected returns exceeding 10 per cent and just seven per cent expected returns to be under two per cent or negative.
- issacjohn@khaleejtimes.com