Dubai: The UAE’s non-oil private sector businesses is confident of a strong revival in growth in 2020 despite the down turn experienced by the sector in the fourth quarter of the year, according to the latest UAE purchasing managers’ Index (PMI) data from IHS Markit.
“Looking ahead, the slowdown in output growth failed to sway firms’ predictions for activity in the coming year. Expectations were firmly positive in December and much stronger than the average for the series, with the Expo 2020 proving a key source of optimism,” HIS said in a note.
December data signalled a downbeat end to the year for the UAE non-oil private sector, with output growth the weakest in over eight years and new work rising only marginally after November’s downturn. Selling charges continued to drop, putting further pressure on margins. Expectations remained elevated though, as firms held on to hopes that increased investment and tourism will support business activity growth during 2020.
The headline PMI slipped to 50.2 in December from 50.3 in November. The rate of improvement in business conditions was fractional and the slowest in the decade-long sequence of growth.
“The UAE non-oil economy ended the year on a very different note to where it started. While the first half of 2019 saw demand levels soar in response to price discounting, the second half was much more subdued, with sales struggling to rise despite further price cuts,” said David Owen, Economist at IHS Markit.
UAE businesses reported a weaker increase in activity during December with new orders growing marginally, linked to soft demand both at home and abroad. The expansion in new business volumes was the weakest seen in the series history.
“Output rose at the softest rate in over eight years, while new orders increased only marginally after a slight downturn in sales during November. Nevertheless, businesses expect 2020 to be a more upbeat year, amid forecasts of greater tourism and investment in the economy. This may be able to lift hiring activity, which has remained subdued throughout the past year or so,” said Owen
Margin pressure
Selling charges were down further in December, as has been the case in each month since October 2018. Many firms cited that strong competitive pressures in the sector led them to offer discounts in order to retain customers. Several respondents noted this was a key factor in restoring demand growth. The decline in output prices was solid, but nevertheless the softest since September.
Lower charges put further pressure on companies’ margins, as surveyed firms saw a fourth successive increase in total costs at the end of the year. However, the rate of inflation was relatively mild, with some respondents noting higher raw material and fuel prices but little change to staff costs. Purchasing activity rose for the first time in three months during December. Firms related this to higher new orders and a depletion of input stocks, though the overall increase in input buying was only modest. Nevertheless, this spurred an improvement in vendor performance, as some firms reported placing stricter deadlines on deliveries.
