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Key sectors of the UAE's private sector are still very much in expansion mode. They are taking on new projects and orders. But clearing work backlogs is something they will need to improve on. Image Credit: Gulf News Archive

Dubai: UAE businesses recorded a sizeable increase in new orders won during June, at the fastest pace since March, according to the latest S&P Global report on the UAE PMI (Purchasing Managers Index) reading for last month.

But there were concerns too, with businesses reporting increases in work backlogs. The effect of the Red Sea shipping crisis and the April floods were factors in adding to the pending work orders. This, however, could ease soon.

"The surge in backlogs is showing signs of easing, a trend that is likely to continue as the country recovers from April's floods and supply chains adapt to the current situation in the Red Sea,” said David Owen, Senior Economist at S&P Global. “Supplier lead times improved at the strongest rate for eight months, which will be a further boon for businesses.”

June PMI

Overall growth for the UAE private sector did slow down during June, which led to a softening of demand for new hiring in some sectors. Cost of raw materials for businesses too had risen, which led to the ‘quickest increase in average prices charged since April 2018’.

The PMI score for June was 54.6 and down on May’s 55.3. The PMI reading indicates the level of business activity in the economy, with weightage given to how these companies are spending, whether they are hiring, and the prices they are selling for. (Any PMI score above 50 means the economy and its businesses are still in expansion mode.)

A slowdown is there

"The UAE (June) PMI highlights a slowing growth trend in the non-oil sector throughout 2024 so far, with the index having lost roughly three points since last December," said Owen. "Nevertheless, companies are still enjoying strong customer demand and robust sales pipelines, which are sustaining output expectations and driving purchasing activity."

The UAE retail sector is still doing well, based on market feedback, through recent months. New stores have opened to encouraging footfalls, The F&B sector continues to feel the pressure of higher cost of operations, including rise in food commodity prices.

Through the first-half of 2024, the construction industry has been pulling its weight. Most encouragingly, recent weeks have seen a further rise in new projects being awarded, with Azizi  Developments confirming three architectural firms for its sprawling Azizi 'Venice' project.

"Real estate and construction sectors will keep driving UAE private sector activity to a good extent in the second-half of 2024," said a contractor. "The slight slowdown in project activity during the April to mid-May phase has abated." 

Passing costs on to customers

After trying to hold the line for some time, businesses are passing on their costs - partially, so far - to their clients. It was something that they would have had to do at some point. Industry sources say that there could be more passing on in the month ahead if their input costs keep rising the way they have done in the recent past.

"On the negative side, input price pressures are at their strongest for nearly two years, causing firms to raise their output prices for the second month in a row," said Owen. "With reports of swelling competition in some sectors, firms are keen to retain their competitive edge, which makes the latest uptick in prices even more indicative that businesses are feeling the pain on their balance sheets and having to protect their margins."

More to follow...