UAE businesses take in new orders, but need confidence boost

Dubai: UAE’s private sector hiring activity got off to a slow start in January, even though businesses were taking on new - and more - orders. Another positive for UAE businesses was a softening in their ‘cost pressures’, according to a new PMI report from S&P Global.

“Firms struggled to contain backlog volumes amid soaring demand and administrative delays,” the report adds, though it remains to be seen whether this would translate into more hiring taking place in the weeks ahead. Business owners’ feedback is that they will need to see more of their cost of operations dropping before job-related decisions are taken.

Plus, inflationary pressures could rear up again if the US imposed higher tariffs come into effect at some point.

Confidence drop

“The broad decline in (UAE) business confidence over the past few months will be a surprise to some,” said David Owen, Senior Economist at S&P Global Market Intelligence.  

“Notably, total confidence was at its lowest level since December 2022. Strong competition and cash flow concerns arising from heavy backlogs have appeared to sow doubt among firms that they can continue to boost their revenues, underlining efforts to reduce the gap between output and input prices.”

Will costs drop further?

Non-oil businesses did see a moderation of price pressures during January after getting hit with some solid increases over the previous two years.

The 'average cost burdens rose at their slowest rate for 13 months, despite evidence of higher costs for transport and machinery, and a quicker rise in salaries', says the S&P report.

This will have a bearing on new jobs.

"A persistently low rate of employment growth suggests that firms are lacking the ability to hire in order to tackle backlog issues," said Owen.

"Input resources similarly remain weak, which seems to be aggravating capacity pressures as work-in-hand rose at the quickest pace in eight months in January."

UAE's PMI score for January

The UAE Purchasing Managers' Index had a 55 score in January, indicating a 'robust improvement' in business sector's health. The reading was only slightly lower than the nine-month high of 55.4 in December.

Yet, there remains a need for greater confidence levels among business owners.

"Despite positive demand trends, surveyed firms were the least optimistic about future activity in just over two years, with only 9% of respondents forecasting growth over the next 12 months," says the S&P Global report. "Robust competition was often cited as holding back optimism..."