The UAE’s non-oil private sector expanded at its fastest pace in two years in July indicated by the latest Purchasing Managers’ Index (PMI) data from IHS Markit.
The overall private sector output growth in the UAE, the most diversified economy in the GCC, is accompanied by strong jobs and demand growth.
Data for July showed firms continued to hire with the employment subindex hitting its highest level since January 2019, though the month-on-month increase remained marginal.
Increased hiring in the private sector is an indication of improved demand in the economy while the higher number of employment is likely to trigger a multiplier effect on income and aggregate demand that should sustain further economic growth and the job growth.
Firms participating in the PMI survey continued to expect sustained output growth going forward, with the easing of Covid-19 restrictions and the Dubai Expo 2020 later this year contributing to improved economic conditions.
With the country achieving significant mile stones in Covid vaccinations and most businesses remaining open, the economy is on a clear rebound. Financial results of banks and companies for the first half of 2021 point to a strong revival in profits and revenues supported by improved credit quality in the economy.
The gradual restart of flights to some of the busiest air routes such as the Indian subcontinent, UK and Europe later this year are likely to boost the tourist arrivals accompanied by greater demand in the hotels and hospitality sectors.
For businesses, the best piece of news is that orders are on the rise again, which is creating more jobs at fastest rate since January 2019. While most of the new orders seem to be coming from within the UAE or the Gulf, a strong export rebound is subject to the reopening of the key trading partners.
Being an open economy, the UAE is clearly susceptible to extraneous factors affecting trade that are very often beyond its control. For example the exports and cross border trade remains somewhat constrained by the restrictions imposed by countries that are facing a second wave of COVID -19 or are in the middle of fresh outbreaks of the Delta variant of the virus.
In addition, raw material shortages caused by global supply chain disruptions are impacting input supplies and prices adversely impacting the margins of the private sector.
While elevated costs do not bode well for the private sector that had been resorting to prolonged price discounting to boost consumer demand, creation of new jobs and additional income are clearly going to support consumer confidence and new demand.