Dubai: UAE businesses adopted a more cautious stance in November as concerns over where the global economy might be headed in 2023 weighed on decision-making. New orders slowed down slightly, and this was reflected in the pace of new job creation within the UAE private sector, according to the latest PMI (Purchasing Managers Index) from S&P Global.
It is a sign that the UAE economy’s post-pandemic business activity spike is stabilising.
But businesses will have been cheered by their cost of operations remaining relatively stable from inflationary pressures. This was brought about by lower fuel costs, and which translated into reduced logistics and supply chain outgo.
“The UAE PMI fell back from its post-pandemic highs to a 10-month low in November, pointing to a slowdown in growth across the non-oil economy,” said David Owen, Economist at S&P Global Market Intelligence. “Confidence about future output fell to its second-lowest for 15 months, leading firms to pull-back hiring growth from its recent high.”
The UAE’s PMI score for November reads 54.4, down from 56.6 in October, and the lowest since the beginning of the year.
The PMI gives a broad understanding of how businesses are faring, based on their orders, capacity use, hirings, etc. A score of less than 50 suggests private sector activity is cratering.
“The (November) headline reading of 54.4 suggests that UAE businesses are still enjoying robust growth, a feat that is becoming more difficult to achieve in the global economy,” said Owen. “Adding to this, UAE firms are seeing little pressure on input costs, which rose at the softest pace for three months and only marginally.”
Will inflation costs drop further?
According to business feedback, shipping and logistics costs have been dropping in recent weeks, adding to the benefits provided by having to pay less on fuel compared to earlier this year and during summer. (This week, global oil prices have been on the weaker side, also brought about by markets mulling over what’s next for the global economy.) Output rises In November. UAE business’ output expanded due to higher demand, ‘with some firms mentioning that ongoing projects had also sustained growth’. The downside was that this pace of expansion dropped to its slowest since January last.
What’s happening on hiring
Businesses reported only modest increases to their workforces during November, after a strong hiring spree in September and October. Even then, ‘the rise in job levels (during November) was one of the fastest seen in the past five years, helping to somewhat alleviate capacity pressures’, the S&P Global report adds.
Market feedback suggests that hiring may have picked up in December, especially those in short-term contracts by late November and early this month, as the UAE gears up for end-of-year activities. Plus, the FIFA World Cup in Doha also delivered its share of benefits to the UAE economy, particularly for the retail, travel, hospitality and services sectors.
Easing of inflation pressures
The biggest plus for UAE businesses from November was the dip in inflation costs.
“Price corrections for some raw materials helped to temper material price pressures," according to S&P Global. “Total input costs rose only marginally, continuing a trend of modest inflation recorded since September.
“On the flip side, prices charged by UAE companies stabilised after falling in each of the prior six months, as fewer companies reportedly offered discounts to clients.”
Businesses would try to leverage these elements to compensate for the 'slowest increase in sales since September 2021' during November.