Stock aerial Dubai skyline
The momentum is back for the UAE economy, with the July PMI numbers showing gains on all major fronts. Image Credit: AFP

Dubai: The UAE’s non-oil economy had its best showing in two years during July, with demand rebounding sharply from the pandemic impact. For businesses, the bets piece of news is that orders are coming in again, which led employment to rise at fastest rate since January 2019, according to the latest data from IHS Markit, the London-based research firm.

Businesses will be hoping that the easing of COVID-19 restrictions and the Expo 2020 would further improve economic conditions. But they remain cautious in mindset - overall business expectations declined from the previous survey period, the report notes.

Most of the new orders seem to be coming from within the UAE or the Gulf. “Ongoing measures in other parts of the world led to a third successive fall in export sales during July, with firms increasingly turning to domestic clients to help recover new business,” IHS Markit notes.

At 54.0 in July, the UAE headline PMI (purchasing managers index) was broadly at its long-run level to suggest the economy was largely back to normal growth. That said, there were many firms reporting that output had not yet recovered to pre-Covid levels

- David Owen of IHS Markit

Worrisome supply chain

"With COVID-19 cases re-accelerating in Asia, firms also pointed to a worsening of supply chain problems," said David Owen, Economist at the firm. "In fact, delivery times lengthened to the greatest extent since the onset of the pandemic in April 2020.”

This is something that all businesses reliant on Asia for their supply of raw materials and other commodities would be worried about. New delta-variant infections are on rise there, and if supplies take longer to reach, businesses – and consumers – here can expect prices to climb even further. The landed costs of steel and almost all other major building material supplies have seen gains since October last.

As it is, UAE firms are already reporting the "second-worst lengthening of input lead times in the survey history, behind only that seen in April 2020", which was when the UAE felt the full impact of the COVID-19 created disruption.

Customers have to pay up

The higher input costs were again partly passed on to customers as output charges rose for the second month running. But so far, the price increases have only been marginal. But can businesses afford to keep it that way?