UAE PMI points to strongest quarterly growth since Q4 2014

The Emirates NBD PMI for the UAE declined from the recent high posted in May 59.4 to 57.7 in June.

By Khatija Haque

The Emirates NBD Purchasing Managers’ Index (PMI) for the UAE declined from the recent high posted in May (59.4) to 57.7 in June. However, the average reading for Q2 2019 was 58.2, the highest since Q4 2014. This suggests that non-oil sector growth accelerated at the fastest rate in more than four years last quarter.

The recovery in the PMI this year has been underpinned by faster expansion of output and new work, although this has come at a cost for many firms as selling prices continued to decline on average in June. External demand has also contributed to the strong growth in new work in June, with new export orders rising at a record rate for the second month in a row. Panellists noted increased export orders from other GCC countries as well as further afield.

However, firms continue to be reluctant to boost hiring in response to increased new work, as their margins are squeezed. None of the panellists surveyed in June reported increased hiring in the month, despite 35% reporting higher output and 36% indicating increased new orders. On average the employment index was fractionally below the “no-change” 50-level in H1 2019 despite the growth in activity and new work year-to-date. Staff costs also declined fractionally in June, pointing to excess supply in the labour market putting downward pressure on wages in the private sector.

Purchasing activity rose sharply in June, with the quantity of purchases index surging to a record high of 71.8 on a seasonally adjusted basis, on the back of strong growth in new orders and output. However, firms appear to have become more efficient in managing their purchases and inventories, as the stocks of purchases increased at a much slower rate (53.3).

Private sector businesses remain highly optimistic about future demand, although the future output index slipped from May’s record high. Nearly three-quarters of firms surveyed expected their output to be higher in June 2020, with many citing Expo 2020 as a reason for their optimism.