A.SREENIVASA REDDY (ABU DHABI)

The non-oil private sector of the UAE’s economy regained its momentum with the seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) leaping to 54.2 in August from from 53.7 in July. 

“After hitting its lowest level for almost three years in July, the upturn in business activity accelerated as firms received a stronger intake of new work, especially from foreign clients,” the S&P Global said. 

The PMI is a survey-based economic indicator that gives an insight into the prevailing business conditions. The PMI is calculated by surveying purchasing mangers from a variety of industries. These managers provide information on several key areas including new orders, production levels, employment, delivery times, inventories and purchasing prices. All these responses are aggregated into a number based weightage given to each factor. 

A PMI above 50 indicates expansion while a reading below 50 indicates contraction. The PMI sends signals about the direction of the economy much before the other indicators such as GDP and employment rates. 

The PMI of 54.2 in August indicates the UAE non-oil sector is accelerating its expansion. “Businesses remain confident that output growth will be sustained over the coming year, especially as sales pipelines remain strong and firms have ample levels of outstanding work to complete,” commented David Owen, Senior Economist at S&P Global Market Intelligence.  “Capacity constraints are also easing which should further aid business activity.”

The August PMI of 54.3 when compared to 53.7 of July indicates a solid improvement in the business conditions of the non-oil sector. “Non-oil firms benefitted from a stronger upturn in new order intakes half-way through the third quarter,” the S&P Global said.

Strengthening domestic conditions spurred a rise in business and an improvement in international demand led to the sharpest increase in new export orders since October 2023, the reports from the panelists of the survey said.  This led to quickening of new business growth to a five-month high. 

However, although the upturn was sharp, it was among the weakest observed in the past three years. "Although the UAE PMI picked up in August and was consistent with a solid expansion in non-oil business, it remained weaker than the levels recorded earlier in the year, as fewer companies reported uplifts in activity,” Owen said. 

The rising costs continue to remain a challenge for the non-oil sector in the UAE. “August survey data pointed to another steep increase in average input costs, with businesses often commenting on higher expenses related to raw materials, transport, IT equipment and maintenance,” the S&P said. “However, a slowing of purchase price inflation meant that overall cost burdens were the softest in four months,” it added.

As a consequence, output prices set by non-oil companies rose further in August in response to marked cost pressures. “Firms should still be wary of their costs, as the survey data indicated another sharp increase in input prices in August. Ongoing price mark-ups have the potential to curb demand,” Owen said. 

Projections for business activity strengthened in August after falling to a six-month low in July. The S&P survey suggests that the companies are optimistic that strong sales pipelines would shore up output over the coming months. 

Dubai PMI

Operating conditions in the Dubai non-oil private sector improved at a stronger pace in August, according to PMI survey data. The rate of demand growth picked up to a five-month high even as stockpiling of inputs resumed, following the first reduction in exactly two years. 

Nevertheless, the rate of expansion in business activity slowed and was the least marked since September 2021. Similarly, employment levels rose at a milder rate. Dubai non-oil firms continued to face upward pressure on their input costs in August.