March 2020 saw a much needed pick up in construction activity, but there are worries on other fronts. Image Credit: Gulf News Archive

Dubai: With construction activity showing an improvement, UAE’s private businesses recorded their best month since July 2019 during March. But the cost of operations is also starting to rise, which can prove worrisome, according to the latest monthly update from IHS Markit.

The cost inflation is also impacting on jobs - some companies are offsetting these higher costs by staff reductions in March. This resulted in a “slight drop” in employment across the non-oil sector.

The biggest issue relates delays on raw material supplies, as well as the high container routes that have been apparent since October last. These have particularly impacted on the UAE’s construction and real estate sectors.

“Global delivery delays having built up during the first quarter of the year. UAE businesses are now starting to see the effects, as input price inflation ticked higher amid rising raw material prices and shipping fees,” the IHS Markit economist David Owen said. “Firms struggling to contain costs may find this acting as a resistance to future output growth as COVID-19 restrictions continue to unwind and new orders start to improve."

The March PMI reading
IHS Markit's UAE Purchasing Managers' Index (PMI) rose from 50.6 in February to 52.6 in March, indicating a "solid upturn in business conditions and one that was the sharpest for 20 months".

The reading also extended the current run of expansion to four months, the longest seen since the end of 2019.

The PMI is designed to give an accurate overview of operating conditions in the non-oil private sector economy.

Sentiments get a lift

Business owners hopes are built on further reductions in COVID-19 restrictions, so much so their outlook for their year ahead recorded an improvement for a fourth straight month. It’s now at its best levels since July 2020.

During March, "efforts to restart construction work was also a key factor to growth, with respondents in this sector noting a resumption of old projects and a rise in new work."

The PMI has also now been above the 50.0 no-change mark in each of the latest four months. Likewise, business confidence improved to an eight-month high, with vaccine optimism driving confidence in future activity

- David Owen of IHS Markit

Making do with stocks

New orders are coming, but businesses are still focussed on controlling their input costs as much as possible. New purchases of raw materials were also hit by supply shortfalls.

“Delivery times on raw materials and key components lengthened for a second straight month, due in part to growing pressure on global supply chains and input availability,” the report adds.