At a time when the GCC region struggles with a diminished oil market and weaker confidence from investors, the UAE and Saudi Arabia have registered strong growth in the Purchasing Managers’ Index (PMI).
This growth is the straight outcome of consistent efforts made to strengthen the countries’ non-oil sectors and ensure increased capital inflow.
According to the findings of a recent survey released this month, business conditions in the UAE’s non-oil private sector continued to improve, with a sharp and accelerated increase in inflows of new work underpinning a robust expansion of output.
The report adds that strong demand conditions and a favorable economic environment encouraged companies to scale up purchasing activity and hire additional workers over the month of February.
Meanwhile, on the price front, average selling prices rose for the first time in almost one-and-a-half years as firms passed a part of their additional cost burdens onto clients.
The researchß, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.
Commenting on the Emirates NBD UAE PMI, Khatija Haque, the head of MENA Research at Emirates NBD, said: “The rise in the UAE PMI to the highest level since September 2015 suggests that demand has strengthened, both domestically and abroad. Higher oil prices have likely contributed to improved sentiment and business activity over the last few months.”
As has been the case in each month for seven-and-a-half years, the headline seasonally adjusted Emirates NBD UAE PMI – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – recorded above the crucial 50.0 threshold in February, thereby signaling a further improvement in the health of the private sector. Up from 55.3 in January to a 17-month high of 56.0, the latest reading was above its long-run average (54.5).
Export orders expand to new heights
New business inflows rose sharply and at the fastest rate since September 2015, which survey participants linked to strong underlying demand and better economic conditions. With new export orders also expanding markedly over the month, companies raised output further. In fact, growth of business activity climbed to an 18-month peak.
Greater output requirements encouraged firms to purchase more inputs and hire extra staff. Buying levels increased to the greatest extent since last September, whereas the pace of job creation softened to the weakest in four months.
The upturn in purchasing activity helped companies to build their input stocks in February, which rose sharply and at the second-quickest pace in one-and-half years.
In tandem with softer increases in purchasing prices and staff costs, average input prices rose at a weaker rate during February. Nevertheless, businesses’ charges were raised for the first time since October 2015 as panellists reportedly acted to protect margins.
Amid reports of particular requests for faster deliveries, average lead times facing non-oil private sector firms in the UAE shortened during February. Furthermore, supplier performance improved to the greatest extent since October 2012.
Momentum to go on
The UAE’s non-oil private sector companies expect the favorable economic scenario to be sustained over the coming 12 months, with one in five (20 percent) companies forecasting output growth in the year ahead.
In fact, the level of positive sentiment was at a five-month high in February. Optimism reportedly reflected aggressive marketing campaigns, strong demand and new projects in the pipeline.
The Emirates NBD UAE PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in approximately 400 private sector companies, which have been carefully selected to accurately represent the true structure of the UAE’s non-oil economy, including manufacturing, services, construction and retail.
The panel is stratified by the Standard Industrial Classification (SIC) group, based on the industry contribution to GDP. Survey responses reflect the change, if any, in the current month, compared to the previous month based on data collected mid-month.
For each of the indicators, the report shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the ‘diffusion’ index. This index is the sum of the positive responses plus a half of those responding ‘the same’.
Emirates NBD Saudi Arabia PMI climbs to 18-month high in February
Saudi Arabia’s non-oil private sector saw a further pick up in growth momentum in February, with business conditions improving at the quickest rate since August 2015.
Both output and new orders rose sharply in February, with the rate of expansion in the latter picking up to an 18-month high. Subsequently, firms raised their input buying at a steep pace to accommodate higher output and due to projections of further improvements in market demand in the coming months.
Despite the robust upturn in new work, the rate of job creation remained only slight, however. On the price front, ongoing cost pressures led firms to raise their output charges for the fourth consecutive month.
The survey contains original data collected from a monthly survey of business conditions in the Saudi private sector.
“Faster output and new orders were the main driver behind the higher PMI reading in February, signalling faster growth in the non-oil private sector last month. However this has yet to translate into increased employment in the sector. Nevertheless, firms appear to be relatively optimistic about prospects for the coming year,” stated Haque.
Operating conditions improve in KSA
At 57.0, the headline seasonally adjusted Emirates NBD Saudi Arabia PMI – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – was consistent with a marked improvement in operating conditions during February. Up from 56.7 in January, the latest reading was also the highest in one-and-a-half years.
However, it remained slightly below the long-run series average (58.3).
The overall improvement in the health of the sector was supported by sharper growth of new work during February.
In fact, the latest increase in new business was the steepest seen in one-and-a-half years. Anecdotal evidence highlighted that promotional activities, new projects, construction activity and stronger underlying demand had supported the upturn in new work. Higher new export orders also contributed to growth of total new business. The latest increase in new work from abroad was the most marked in six months.
Reflective of the trend seen for incoming new business, output expanded sharply, although the rate of growth softened slightly since January.
Purchasing activity also increased markedly in February. As a result, stocks of purchases continued to expand at a solid pace.
The rate of job creation eased to a 14-month low and was slight overall. Marginal employment growth has now been recorded in each of the past six months. Consequently, backlogs of work accumulated at the fastest rate in 20 months.
Higher raw material costs was reportedly the primary factor behind another increase in total input costs as wage inflation remained comparatively mild.
Subsequently, charges increased for the fourth straight month in February. The rate of output charge inflation was modest, however. According to panellists, competitive pressures had restricted firms’ abilities to pass on higher input costs to clients.