Dubai: The UAE’s non-oil private sector output surged to an eight-month high last month, according to the Emirates NBD Purchasing Managers’ Index (PMI).
The May PMI rose to 54 from 52.8 in April, the second highest reading so far this year. “The main driver behind the improvement in business conditions last month was a strong growth in output, with this subindex rising to 59.9 — the highest reading since September 2015,” said Khatija Haque, Head of MENA Research at Emirates NBD.
Private sector activity increased at the fastest pace in eight months during May, helped by a pickup in new business growth. However, data pointed to areas of underlying fragility, as both employment and input buying rose only slightly. The expansion of the latter was the least marked since September 2011. Cost pressures intensified but remained historically subdued, while output prices fell for the seventh month running.
New orders increased at a faster rate in May relative to April, despite weak external demand. Although exports orders did increase on average in May following two months of declines, the rise was only marginal.
Despite the strong rise in business output and new orders last month, the employment index was up just 0.4 points to 50.4, only slightly above the neutral level, pointing to weak growth in jobs. Purchasing activity was also softer last month, as many firms indicated they had sufficient stock to cope with demand. The quantity of purchases subindex was the lowest since September 2011.
Input prices rose at the fastest rate in seven months in May, mainly on the back of higher purchase costs as staff costs were close to neutral. Nevertheless, firms cut output prices for the seventh consecutive month, with many respondents citing increased competition as the reason for absorbing higher input costs. The backlogs of work increased only marginally last month, suggesting that there is still spare capacity in the UAE non-oil private sector.
“The improvement in the headline PMI in May is encouraging as it points to solid growth in the non-oil private sectors. However, relatively soft jobs growth and slower purchasing activity against the background of increased output and strong new orders, suggests that firms remain somewhat cautious about the outlook,” said Haque.
On the price front, total input costs in the UAE’s non-oil private sector rose further in May. The overall rate of inflation picked up to a seven-month high. That said, cost pressures remained muted in the context of historical data. Charges decreased for the seventh consecutive month. The rate of decline was in line with the trend over previous months with discounts were widely attributed to greater competition.
