stock abu dhabi SKYLINE
While the UAE is projected to put in another solid year of GDP growth, forecasts for much of the global economy is shrouded in uncertainty. This is leading to more businesses display extreme prudence in committing to expansion or new hires. Image Credit: WAM

Dubai: New orders generated slowed down for UAE businesses in December as did output, as the private sector took on a wait-and-watch towards what’s in store for the global economy this year. Lower output also meant UAE businesses were more intent on keeping staffing at same levels, says the latest PMI update from S&P Global. (On new hiring, there were exceptions with airlines and the tech/digital space continuing to see job creation.)

Private sector output during December slipped to a 15-month low, while businesses calibrated what they should be doing next. This heightened degree of caution meant business conditions improved at the slowest rate since January 2022.

While the latest forecasts suggest the UAE is up for another year of solid GDP growth, the same cannot be said for large swathes of the global economy. More warnings are coming through, including this week, that conditions for a full-blown global recession are rife.

"Businesses were less confident that output growth would be sustained in 2023, as year-ahead expectations fell to the weakest level since February 2021 amid concerns that economic problems abroad will seep through into the domestic economy," said David Owen, Economist at S&P Global Market Intelligence. "On the positive side, firms enjoyed a renewed fall in their expenses as commodity prices moderated and input availability improved, which supported an additional cut to selling prices."

Input costs help out

That’s a fact – input costs are lower, and business owners have been trying to pass that on to consumers/clients where and when they can. This trend was quite visible during December, especially as the end-of-year promotions kicked in.

According to S&P Global, UAE firms saw a ‘fractional decrease’ in their input costs as ‘improving supplier availability underpinned lower material prices’. This in turn lead to these businesses dropping their output charges at the fastest rate for three months.

In the next few weeks, local firms should see some more relief on cost of operations, with fuel costs and shipping charges staying on the softer side.

December data signalled a renewed decrease in overall cost burdens across the (UAE) non-oil economy. The slight reduction was mainly linked by respondents to improved input availability and a stabilisation of wage costs. The decline in business expenses was only the second recorded in almost two years

- S&P Global

Local vs global

Even as UAE businesses build in sufficient cover locally, it's what could happen in key overseas markets that is starting to be a real concern. Especially for those that rely on orders or contracts from overseas clients. "While domestic demand conditions are holding up relatively strong, weakness in the global economy led to a first decrease in new export business since August 2021," said Owen. 

So, preserving cash has become an end in itself for UAE businesses, which meant "Employment rose at the softest rate in eight months," said Owen.

UAE PMI score for December
In December, UAE's non-oil private sector activity clocked a score of 54.2 on the Purchasing Managers Index (PMI), down marginally from 54.4 in November. The score offers a mirror on what businesses have been doing with output, hiring, expansion plans, etc..

UAE's December PMI is 'in line with its long-run series average (since August 2009)', according to S&P Global. "The reading signalled a robust improvement in the health of the non-oil sector, albeit one that was the softest since January (2022)."