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UAE: Non-oil businesses continue strong growth

PMI data show solid improvement to sector's performance

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UAE non-oil businesses continued to see a strong expansion at the start of the year, as the seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) stood at 54.1 in January, the company said on Friday.

The index, while down fractionally from 54.2 in December, signalled another solid improvement in the sector’s performance at the start of 2023. Output and new orders both rose sharply, whilst robust supply chains and stable energy prices helped to keep input costs settled. Employment and purchasing activity continued to increase.

David Owen, Senior Economist at S&P Global Market Intelligence, said: “The UAE PMI...continued to signal a robust improvement in business conditions at non-oil companies at the beginning of 2023. Activity levels rose sharply in response to another marked boost in new order inflows. The results showed that the non-oil sector remains in good health and in particular compares positively against a global economic slowdown towards the end of 2022. Firms were somewhat optimistic about future output prospects.”

Whilst continuing to signal a sharp rate of activity growth, the output sub-index was unchanged at a joint 16-month low in January. A fifth of surveyed businesses saw their output levels rise over the month, whereas just 2 per cent recorded a decline. According to panellists, growth was mainly driven by higher sales, increased marketing and efforts to complete existing projects.

Meanwhile, UAE non-oil firms reported a sharp increase in new order inflows in January, with the upturn picking up to a three-month high. However, like output, the expansion rate remained softer than those recorded throughout much of 2022. Overall sales growth was partly stymied by a sustained reduction in export orders, which fell at the quickest rate since June 2021 amid weakening global economic conditions.

Non-oil companies also expanded their input purchasing at the start of the year. Some businesses commented that vendors were able to deliver materials in a timely manner, leading to an improvement in overall supplier performance. Stocks of purchases also rose, but only modestly.

Meanwhile, January data signalled a lack of inflationary pressures across the non-oil private sector, as input prices were broadly stable for the second month running. Robust supply chains and the partial alleviation of energy and transport price pressures helped to keep costs steady, according to panellists, offsetting price rises for some items. Staff costs were unchanged for the second straight month.

Subsequently, firms reported an additional cut in average prices charged during January. The modest rate of discounting quickened slightly from December and was the fastest for five months, with firms often choosing to offer price promotions in a bid to attract sales.

Looking ahead, UAE non-oil companies gave a subdued outlook for future activity in January, albeit one that was still positive overall. The degree of optimism picked up slightly from December’s 22-month low, with firms hoping that market conditions will continue to strengthen.

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