A.SREENIVASA REDDY (ABU DHABI)
The non-oil private sector of the UAE’s economy showed sharper expansion in October, with the seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) reaching 54.1, from 53.8 in September.
The PMI is a survey-based economic indicator that gives an insight into the prevailing business conditions. The PMI is calculated by surveying purchasing managers 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 on the 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.
“Driving the PMI higher was a sharper expansion in activity levels at non-oil companies in October,” the S&P Global said.
Analysing the PMI data, S&P Global said: “Following September's three-year low, the pace of growth improved to the quickest since April, as firms raised output in response to higher sales volumes, healthy work pipelines and robust client numbers.”
The S&P Global report said that the firms are optimistic about the growth in the coming year with business sentiment picking up from September's 18-month low. “This was also helped by the rate of input cost inflation dipping to the lowest since April,” the report said.
More than a quarter of survey respondents (28%) posted a rise in activity over the month, whereas just 4% saw a decline, the S&P Global report noted.
“The main factor keeping the PMI above its previous reading was an expansion in business activity, which accelerated notably from September's three-year low,” commented David Owen, Senior Economist at S&P Global Market Intelligence.
“Firms still see a long pipeline of work backlogs and ongoing contracts. This may ensure that the non-oil economy can continue to grow even if sales momentum slows further, though it may be more difficult to keep up this pace,” Owen added.
Sounding a note of caution, S&P Global said: “Intakes of new work increased in October, but the rate of growth dropped to its weakest level in 20 months.”
Firms often said that demand momentum was showing signs of waning, with some even seeing sales fall due to strong market competition, the report said.
Regarding employment, S&P Global said: “Softer new business growth contributed to a weaker rise in employment numbers, which was notably the mildest recorded in two-and-a-half years.”
Noting the positive signs in backlog work accumulation, the report said: “Input purchasing growth remained sharp, particularly as businesses tried to overturn the recent trend of backlog accumulation. This trend persisted in October but eased slightly, as firms reported an increase in work-in-hand.”
The slower rise in backlogs was aided by a stronger improvement in supplier delivery times. But, with inputs rapidly used to complete both new and existing work, there was little change in firms' overall stocks, extending the general run of inventory stagnation, the report said.
On the price front, the latest PMI survey data was more encouraging, as non-oil firms reported the softest increase in overall input costs for six months. A slowdown was recorded for both purchase prices and wages, the report said.
Average prices charged decreased for the first time since April. The decline is linked by firms to the need to be more competitive, as well as the pass-through of some cost savings, the report said.
“The October UAE PMI report highlights a resilient non-oil private sector that continues to perform strongly,” said Vijay Valecha, Chief Investment Officer at Century Financial.
“While the pace of new orders has moderated, the strong activity levels and improved business confidence indicate a positive outlook for the non-oil sector,” he said.
Predicting that the possible rate hike by the US Federal Reserve could potentially increase capital flows into the UAE’s private sector, Valecha said: “This would likely strengthen growth in key UAE sectors that rely heavily on favourable financing conditions, such as real estate, retail, and manufacturing.”
Dubai PMI
The Dubai PMI signalled a slower growth in orders when compared to the UAE as a whole. “At 53.2, the headline PMI was down from 54.1 in September and at a three-month low, contrasting with a slight pick-up in growth across the UAE as a whole, the report noted.
“New business intakes rose at the softest rate since the beginning of 2022, as a number of panellists cited tougher market conditions and increased competition,” S&P Global said.
“Similar to the overall UAE picture, Dubai non-oil firms posted a drop in average selling prices for the first time since April, linked to strong competition,” the report added.