Stronger upturn in new business boosts output growth in July

Business activities across the UAE picked up at the start of the third quarter, recording a faster upturn in new intakes to boost output growth, according to July's PMI data.

A promising underlying demand was supported by promotional efforts as firms scaled up output, stepped up input purchasing, and took on additional workers as outstanding business piled up, S&P Global UAE Purchasing Managers' Index report said.

“The rise in sales was marked and quicker than seen in June. International demand for UAE non-oil output increased further at the start of the third quarter,” it said.

Posting 55.4 in July, the seasonally adjusted S&P PM, which is a composite indicator designed to give an accurate overview of operating conditions in the private sector economy, pointed to a marked improvement in the health of the sector.

The headline figure rose from 54.8 in June and was above its long-run average.

The bullish PMI report is in line with the upbeat projections made by the Central Bank of the UAE and other institutions. In 2022, according to the regulator, the UAE is set to post its strongest annual expansion since 2011 after it grew by 8.2 per cent in the first three months of this year on higher oil prices and measures to mitigate the impact of the Covid-19 pandemic.

The Arab world’s second-largest economy, which expanded 3.8 per cent in 2021, is expected to grow 5.4 per cent and 4.2 per cent in 2022 and 2023, respectively, according to the latest projections by the Central Bank of the UAE.

While the International Monetary Fund projects that the economy will grow 4.2 per cent this year Emirates NBD forecasts growth of 5.7 per cent and Abu Dhabi Commercial Bank predicts a 6.0 per cent expansion, supported by a sharp rise in the oil sector.

David Owen, an economist at S&P Global Market Intelligence, said at the start of the third quarter, businesses reported a faster upturn in new intakes and scaled up output accordingly. “With demand strengthening, operating capacities came under pressure, but businesses reacted to this squeeze by continuing with their hiring efforts.”

The PMI survey panelists said favourable demand conditions, competitive pricing, marketing efforts, and expanded clientele all drove new business intakes higher in July.

In July, there was another substantial increase in overall input costs, albeit with the rate of inflation softening from June's 11-year high. Material prices continued to rise much more markedly than wage costs, while fierce competition for new work underpinned another fall in selling prices, said the report.

The rate of expansion was solid and broadly similar to that seen in the previous month. As a result of sustained growth of new business volumes, firms scaled up output in July.

“The rate of expansion was sharp and the joint-fastest in 2022 so far, matching that registered in May. July data pointed to an intensification of capacity pressures among non-oil firms, as outstanding business increased at the quickest pace since March 2020. In response to rising backlogs, companies continued with their hiring efforts. Employment expanded only slightly. Joint-quickest rise in business activity in year-to-date Sales growth picks up as firms refrain from lifting charges Input cost inflation moderates from June's 11-year high,” said the report.

The current run of output expansion is now approaching its second year, a remarkable performance when considering lingering global headwinds, said the report.

"The biggest challenge facing the UAE non-oil businesses is inflation. While the latest results pointed to a softer upturn in overall input costs, the rate of increase was nevertheless the second-strongest in four-and-a-half years amid global shortages of inputs and greater prices for fuel, materials, and shipping,” said Owen.

"Once again, firms opted to absorb additional cost burdens and cut their prices in line with intense competition for new work. The rate of discounting eased and was only fractional, however, indicating that some firms may be prepared to hike their charges in coming months," said Owen.

— issacjohn@khaleejtimes.com