UAE’s non-oil sector signals strong upward momentum

Business activity across UAE’s non-oil sector rose at the fastest pace in nearly five years in February after a slowdown in January, helped by a rise in output and business confidence, a survey showed on Tuesday

The output growth was strongest since June 2019 amid robust demand momentum despite supply constraints caused by the Red Sea shipping disruption, the S&P Global UAE Purchasing Managers' survey report said.

The seasonally adjusted S&P Global UAE Purchasing Managers' Index (PMI) rose to 57.1 in February from 56.6 in January, while the output sub-index surged to 64.6 from 62.0 in January, the highest figure since June 2019, lifted by new business, stronger client activity and marketing activities.

Abdullah bin Touq Al Marri, Minister of Economy, has said the UAE achieved “a historic first” in 2023 as its robust national economy reached a milestone in its diversification drive with the non-oil sector accounting for 73 per cent of the country's total GDP. “This achievement reflects the confidence of the private sector and investors around the world in the UAE’s investment environment,” Al Marri said last week. He predicted that the Arab world’s second-largest economy would grow by up to 5.0 per cent in 2024.

"The UAE PMI continued to signal strong upward momentum in the non-oil economy at the start of 2024, with February's reading of 57.1 up from 56.6 in January. One of the PMI's largest components, the Output Index, rose to its highest level since June 2019, pointing to a rapid expansion of business activity as firms look to take full advantage of strong market growth and maintain a competitive edge,” said David Owen, senior economist at S&P Global Market Intelligence.

"Capacity pressures were apparent, however, with backlogs of work rising at their fastest pace in nearly four years, as Red Sea shipping disruption fed through into transport delays. Overall supply chain performance improved at the weakest rate since last July but still improved, suggesting that the impact on vendors is so far limited. "Business expectations suggest that companies are positive about the year ahead, although concerns of a crowded market remain and appeared to dampen sales growth further. New orders rose at their softest rate for six months, suggesting output growth could also begin to slow," said Owen.

Attacks on vessels in the Red Sea have disrupted global shipping since November and forced firms to re-route journeys that are longer and more expensive. Some companies reported delays to input deliveries, resulting in a sharp accumulation of outstanding work. However, overall supplier performance was still positive, as many firms reported the quicker distribution of inputs when requested.

To support workloads and offset backlog growth, hiring activity accelerated in the latest survey period. As such, employment levels expanded to the fastest degree since last May.

Higher new business, stronger client activity, and greater marketing and development work were among the factors cited as driving heightened activity. “Improving demand conditions once again led to a marked rise in new business inflows in February. The rate of growth remained above the long-run trend but softened to a six-month low. While client orders generally picked up, firms often noted the impact of competitive pressures on growth,” said the PMI report.

While client orders generally picked up, firms often noted the impact of competitive pressures on growth. A greater degree of price cuts was recorded in February, the strongest in nearly three-and-a-half years. Firms highlighted the need to retain market share which often involved offering discounts to clients. Price cuts were seen despite another solid increase in overall input costs, linked to rises in material prices and wages

• Business