Amidst the new orders, UAE businesses have seen some softening in their margins as competition forces them to rely on price cuts and promotions. Image Credit: Shutterstock

Dubai: The pace of hiring in UAE's private sector increased for a second straight month in March, as businesses took on more orders and sentiments improved across the board. At the end of the first quarter, the mood among business owners about short- to medium term prospects are turning quite bullish, based on the latest PMI numbers from S&P Global.

On the downside, companies are facing 'considerable pressure on their workloads, amid reports of administrative delays and increased supply constraints due to the Red Sea shipping crisis'. This has led to backlogs on orders piling up, at the joint highest rate in the last 15 years. 

But businesses are not letting it get to them - optimism is up to its highest levels for six months, helped by the fact that firms experienced a 'softer increase' in their expenses. Margins, though, seem to have taken a dent, brought on by ever increasing competition. This led to the 'strongest drop in output prices for three-and-a-half years'.

According to HR industry sources, airlines and hotels in the UAE remain the big drivers of new job creation. Retail sector seems to have had some slowing down, with major hiring activity having been done in the final quarter of 2023 itself.  

The Purchasing Managers' Index (PMI) – a measure of business spending on expansion, workforce additions, etc. -  registered a score of 56.9 in March, down slightly from 57.1 in February. (Anything over 50 signals business activity ticking along nicely.)

Pent up demand will help

"While the surge in backlogs is concerning as an indicator of business health, the pent-up demand should support activity growth for even longer once these issues are resolved," said David Owen, Senior Economist at S&P Global Market Intelligence.

What UAE businesses should take note of
Selling prices fell at the sharpest rate for three-and-a-half years, which firms linked to growing competition and the need to retain customers.

- S&P Global

It's all about new orders

It's on the new orders that UAE businesses are winning. The rate of expansion actually picked up from February's 6-month low, though still slightly softer than those recorded at the start if the year. "Rising client spending and marketing campaigns were often noted by companies seeing higher order inflows," the report adds. "Export sales also increased, but only modestly."

The Red Sea issue was a live concern for many UAE businesses, whether they were into exports or reliant on imports from Europe for their operations. Shipment delays on raw materials might have had a say in backlogs building up.

This is something that UAE private sector enterprises will have to work on. "Full attention should however be given to the survey's 'Backlogs of Work Index', which posted its joint-highest reading since the survey began in 2009 (matched only in June 2018)," said Owen. "The index is a key indicator of capacity pressures and has shot upwards since the beginning of the year, with firms increasingly signalling that supply and administrative issues are preventing them from completing order books.

"The shipping crisis in the Red Sea was also a reported factor, particularly as it erodes supplier's ability to deliver items on time."

How's the mood for businesses?

Margin pressures and backlogs are not forcing businesses to go low on their optimism. So much so, their sentiments towards future business activity rose to the second-strongest level since September 2023.

"Strong demand, high profits and marketing plans were often attached to positive predictions," the S&P Global report notes. "Concurrently, firms raised their employment numbers at a pace above the (UAE PMI) series trend for the second straight month."