Report: UAE growth partly driven by steep price discounting

December 6, 2018 10:21 am


The Emirates NBD Purchasing Managers’ Index® (PMI®) for the UAE 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, Khatija Haque, Head of MENA Research at Emirates NBD, said:

“Selling prices in the UAE fell at the fastest rate since the 2009 recession in November, with the output price index declining to 47.0 from 48.7 in October. That input costs rose at the fastest rate since January even as firms were cutting output prices speaks to the challenging business environment and the pressure this is putting on firms to compete on price.

However, the steep price discounting, combined with other marketing efforts helped support domestic demand, and both output and new work rose at a faster rate last month, compared with October. Firmer export demand also contributed to overall new orders growth in November, with new export orders rising at the fastest pace in four months. Some businesses reported increased orders from other GCC countries in particular.

Read: Dubai Economy Tracker signals slowest growth since March ’16

Largely as a result of the stronger output and new orders growth, the headline Purchasing Managers’ Index for the UAE rose slightly to 55.8 in November from 55.0 in October. The average PMI with just one month left of the year is 55.7, marginally lower than the average of 55.9 recorded in the same period last year, signalling growth in the non-oil private sector at a similar rate to 2017. Official data showed the UAE’s non-oil sector grew 2.5% in 2017.

The employment index rose marginally to 50.6 in November from 50.1 in October, but the majority of firms (94.2%) reported unchanged headcount last month. The 3.1% of firms who reported increased hiring attributed this to higher workloads. Staff costs were only marginally higher in November, with just 1.4% of respondents saying they had increased wages & salaries.

Read UAE PMI: Economy expands at a steady rate in October

Purchasing activity increased sharply in November, as firms responded to increased new orders and output requirements. However, the overall level of inventories was unchanged, suggesting that firms are unwilling to invest in pre-production goods until they are actually required.

Optimism about future output remained near the series high, although this index declined modestly from October. Exactly 75% of firms surveyed expected their output to be higher in a year’s time, compared with 6.7% who predicted lower output.”

The main findings of the November survey were as follows:

• Sharper rises in output and new orders
• Selling prices lowered to the greatest extent in just over nine years
• Business optimism remains elevated

Read: Flexible working to contribute $10tr to global economy by 2030

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 55.8 in November, up from 55.0 in October.

Central to the improvement in business conditions were sharp and accelerated rises in both output and new orders. Panelists linked increased output to higher new orders, alongside marketing and promotional activity.

New business increased to the greatest extent since June, with new export order growth quickening to a four-month high. A number of panelists reported higher new orders from customers in other GCC countries.

Data suggested that price discounting helped firms to secure new work during November. Output prices were reduced at the fastest pace since October 2009. Panelists linked the reduction to competitive pressures.

Read: How the ‘gig economy’ is driving people to up their game, push limits

The fall in output prices was recorded in spite of a pick-up in the rate of cost inflation. Overall input prices rose to the greatest extent since the introduction of VAT in January. The rise in overall input costs was driven by higher purchase prices, which respondents linked in turn to increased raw material costs and higher prices charged by wholesalers.

Rising output requirements led non-oil companies to increase their purchasing activity and employment in November. Input buying increased sharply, and at the fastest pace in the year-to-date. Employment, meanwhile, rose only modestly as firms attempted to limit costs.

Suppliers’ delivery times continued to improve as companies commented on an improved service from their regular vendors. That said, lead times shortened to one of the least extents in the survey so far.

Improving demand and expectations of further increases in new orders meant that business confidence remained elevated in November. Optimism was only slightly lower than October’s record high.  The next UAE PMI Report will be published on January 10th 2019.

Follow AMEinfo on Facebook , LinkedIn, and Twitter , and subscribe to our newsletter at the bottom of this page.

Tags:

AMEinfo Staff
By AMEinfo Staff
AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.



AMEinfo EXPERTS