Emirates NBD UAE PMI®: New order growth slows to 4-month low
Today sees the release of December data from the Emirates NBD Purchasing Managers’ Index® (PMI®) for the UAE. The survey, compiled by IHS Markit, contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.
Commenting on the UAE PMI® survey, Daniel Richards, MENA Economist at Emirates NBD, said:
“The Emirates NBD Purchasing Managers’ Index (PMI) for the UAE dipped from 55.8 in November to 54.0 in December. This marked the slowest pace of expansion in the non-oil private sector since October 2016 and has weighed on the 2018 average, which finished the year at 55.5, from 56.1 in 2017. Output fell from 60.1 to 58.8 and new orders from 61.0 to 58.3. Although the PMI remains in expansionary territory (50.0 is the neutral level which delineates contraction and expansion), the subcomponents of the survey suggest that this is continuing to come at a cost to businesses’ margins, albeit to a lesser degree than seen in November.
Output prices did not fall as quickly in December as in the previous month – which was the fastest pace recorded since the 2009 recession – but they remained sub-50. Domestic competition led to sales promotions, according to firms surveyed, and a slower pace of growth in new export orders suggests that most of the growth in new orders was domestically driven.
The fall in output prices was mitigated somewhat by a slower pace of growth in purchase costs which expanded at the slowest pace since August. Nevertheless, the squeeze on margins is apparently still taking its toll on headcount and pay; both employment and staff costs were broadly flat compared to a month earlier. Only 1.4% of firms took on new staff while all respondents reported their staffing costs unchanged, maintaining a trend recorded throughout H2 2018.
Despite the squeeze on firms and dip in the headline reading, a sizeable majority of respondents (65.4%) retain the view that output will be higher in 12 months’ time, while only 5.2% expected conditions to deteriorate. However, some firms cited expectations of successful sales drives to help boost output, suggesting that price discounting will remain necessary to boost output in 2019.”
The main findings of the December survey were as follows:
-Lowest PMI reading since October 2016 amid slower growth of output and new orders
-Output prices reduced for third month running
-Employment broadly unchanged
The headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index™ (PMI®) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – posted 54.0 in December, down from 55.8 in November and signaling the weakest improvement in business conditions since October 2016.
The drop in the headline figure reflected smaller contributions from all five constituent indices, suggesting a broad slowing of growth across the non-oil private sector at the end of 2018.
The latest expansion of business activity was solid overall as new orders increased again but slower than that seen in November. New orders rose at the weakest pace since August. The offering of discounts in a competitive marketplace reportedly contributed to rises in both activity and new business.
Selling prices were reduced for the third successive month, albeit modestly. Companies were helped in the offering of discounts to customers by relatively weak input cost inflation. Overall input prices rose only marginally in December, with both purchase and staff costs broadly following the overall trend.
Efforts to control costs discouraged firms from hiring additional workers at the end of 2018, despite increasing new business. Employment was broadly unchanged, following a marginal rise in November.
Firms in the UAE’s non-oil private sector continued to expand their purchasing activity in response to the growth of new orders and higher output requirements. Data suggested that purchased items were only used to support higher output, rather than also to build stock holdings. Inventories of inputs decreased for the first time in four months, with some firms linking this to efforts to manage cash flow more efficiently.
Companies generally remained optimistic that business activity will continue to increase over the course of 2019. Optimism was based on expectations of improving economic conditions and success in securing additional sales over the next 12 months.
Business activity in the UAE’s non-oil private sector continued to rise solidly in December, albeit at a slower pace than seen in the previous month. Where output increased, panelists mentioned higher new business, but also partly linked growth to promotional offers. These were reportedly the result of a competitive marketplace.
Competitive pricing and good quality products helped companies in the UAE to secure greater volumes of new business during December. New orders have increased throughout the history of the survey which began in August 2009. That said, the rate of expansion softened from November and was below the series average.
December data signaled a slowdown in the rate of growth in new export business. Although new orders from abroad increased for the ninth consecutive month, the rate of expansion was the joint-weakest in this sequence. Anecdotal evidence suggested that new export business had mainly been secured from clients in neighboring countries.
Backlogs of Work
As has been the case in each month throughout the past two years, backlogs of work increased in December. The rate of accumulation was broadly in line with those seen in the previous two months. According to respondents, rising new orders and delays in receiving payments from customers contributed to the build-up in outstanding business.
Suppliers’ Delivery Times
Suppliers’ delivery times shortened solidly during December, with the latest improvement in vendor performance the most marked since June. That said, lead times shortened to a lesser extent than the series average. Where quicker deliveries were recorded, panelists mentioned that requests for shorter lead times in line with business requirements had been met by suppliers.
Staffing levels were broadly unchanged in December, after having risen marginally in November. While some respondents took on extra staff in response to higher new orders, others were reportedly reluctant to hire amid efforts to control costs. The vast majority of panelists (97%) left their staffing levels unchanged at the end of the year.
Non-oil companies in the UAE reduced their output prices for the third successive month in December. That said, the pace of reduction was slight, and the weakest in the current sequence of falling charges. Respondents indicated that they had offered promotional discounts amid competitive pressures.
Overall Input Prices
Overall input prices rose only slightly in the UAE’s non-oil private sector in the final month of 2018. The rate of inflation was the weakest in the current four-month sequence of increasing overall cost burdens. Slower rises in both purchase prices and staff costs were recorded.
In line with the picture for overall input prices, purchase costs rose at a slower pace during December. The latest rise in purchase prices was marginal and the slowest since August as almost all respondents signaled no change from November. Purchase costs have now increased in each of the past 19 months.
Staff costs increased only fractionally in the UAE’s non-oil private sector in December, following a slight rise in the previous month. Aside from the increase in November, wages and salaries were little-changed through the second half of 2018, pointing to subdued salary inflation.
Quantity of Purchases
Non-oil companies in the UAE continued to record increases in purchasing activity during December, with respondents often linking the latest rise to higher new orders and output requirements. Input buying rose sharply at the end of 2018, although the rate of expansion was slower than that seen in the previous month.
Stock of Purchases
December data suggested that purchased items were used to support output growth rather than to build stocks as inventories of purchased items decreased for the first time in four months. Some panelists indicated that stocks had been lowered as part of efforts to manage cash flow more efficiently. The fall in inventories was the most marked since March 2012.
Companies remained strongly optimistic that activity will increase over the coming year, with approximately two-thirds of respondents confident regarding the 12-month outlook. Expectations of successful sales drives and improving market conditions were among the factors cited by those respondents predicting activity to increase.