UAE private sector outlook improves for 7th consecutive month

The UAE non-oil private sector saw a slightly weaker improvement in business conditions in June, but the outlook for future activity improved for the seventh month in a row.

The UAE’s private sector also recorded the fastest growth in nearly two-and-a-half years, in terms of new job creation, according to the headline seasonally adjusted IHS Markit UAE Purchasing Managers' Index (PMI) for June released on Monday.

Data for June showed IHS Markit UAE PMI slipping marginally from 52.3 in May to 52.2 in June to signal a moderate expansion in the non-oil economy that was the slowest since February.

Although overall new orders increased, the rate of growth slipped for a second month running. Many firms saw an improvement in client demand as the impact of the pandemic eased, but others reported that flight cancellations and global travel restrictions harmed tourism prospects. Most notably, new export orders fell sharply and at the quickest rate for just over a year, IHS Markit said.

Nevertheless, sustained sales growth and a slightly improved outlook for future activity encouraged firms to expand their workforce numbers in June. Whilst only marginal, the increase in staffing was the first seen since January and the quickest for nearly two-and-a-half years. This helped firms to lower backlogs after a two-month run of accumulation.

"Business conditions continued to improve at only a gradual pace in June, adding evidence to a mixed initial recovery from Covid-19 in the UAE non-oil sector. Firms often mentioned that material shortages had hampered output growth, while new sales were curtailed by travel restrictions,” said David Owen, an economist at IHS Markit.

“As a result, the pace of output growth remained far off the average level seen since data collection began in 2009, leaving business expectations relatively subdued despite another uplift since May. Further boosts to confidence and a drop in Covid-19 cases are likely needed to push the economy into another gear,” he added.

The latest data pointed to a renewed increase in output charges for only the second time in 33 months. Efforts to pass through rising input costs to clients outweighed discounting at firms faced with heavy competition. However, the overall rise in charges was fractional, IHS Markit said.

Price pressures were driven higher by supply problems in June, with the latest data signalling the fastest rise in purchase costs for three months. Higher steel and concrete prices were often cited by survey panellists, as well as a rise in transportation charges.

Having built up stocks in recent months, many firms chose to hold off new purchases during June, leading to the first fall in input buying since last November. Despite this, the arrival of previously bought items led to the strongest expansion of inventories for ten months.

Overall, June’s whole economy PMIs for the Gulf were a mixed bag, although one common thread was that weaker external demand offset a pickup in domestic demand.

Saudi Arabia’s whole economy PMI remained unchanged at 56.4 while Qatar’s PMI jumped from 51.5 to a three-month high of 54.6 in June.

“Strong vaccine rollouts mean that most virus restrictions will be lifted in the coming months, paving the way for a further pick-up in domestic activity,” said James Swanston, Mena economist at Capital Economics.

waheedabbas@khaleejtimes.com