As competitive conditions, rising price pressures and capacity overloads weighed on performance, business conditions across the UAE non-oil private sector improved at the weakest pace in almost three years in July, a purchasing Managers’ survey shows. However, business confidence in the year ahead remained strong.
Analysts see the trend as a further proof of a temporary downturn in non-oil sector growth during the summer months.
The seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – dropped to 53.7 in July from 54.6 in June, its lowest since September 2021. The index was also below its long-run average of 54.4, but remained solidly above the 50.0 neutral threshold, the PMI report said.
David Owen, senior economist at S&P Global Market Intelligence, said the drop in the UAE PMI is a further signal that non-oil sector growth is on a downwards trend in 2024. “Not only is the index at its lowest for almost three years, posting 53.7 in July, but it has also lost momentum in four out of the last five months and fell below its long-run trend level (54.4).”
The PMI report noted that price inflation accelerated further, with companies experiencing the fastest rise in input costs for exactly two years. Higher input prices were once again partially passed through to customers, as output charges increased for the third month running. Business activity levels rose further in July, as firms commented on rising inflows of new work, on-going projects and improved supply chain conditions.
The Dubai PMI dropped to its lowest level in two-and-a-half years in July. At 52.9, down from 54.3 in June, the headline index signalled a solid, but slower improvement in the health of the non-oil private sector, said the report.
In Dubai, a softer upturn was especially seen with regards to new orders, which was partly dampened by competitive conditions. Output growth eased slightly to its lowest since September 2021, leading to a scaling back of job creation. Notably, non-oil firms reduced their stocks of purchases at the second-fastest pace on record in July (behind April 2020), amid reports of rising material price pressures and the need to utilise existing stocks. Input prices increased at the quickest rate in exactly two years, driving a third successive uplift in output charges.
“Business capacity remained one of the key challenges facing the sector, as indicated by another steep uptick in backlogs as firms struggled to resolve supply and administrative issues. Although delivery times are improving and purchases rising, firms were forced to dip into their stocks to try and resolve some of these issues, which could act as a headwind to growth if inventories are noticeably depleted,” said Owen.
Overall, the PMI suggests that the non-oil sector is expanding solidly and could be strengthened if companies start to get on top of their workloads. “Firms are generally optimistic of this, with confidence in the year ahead remaining strong, while hiring also continued in a bid to raise staff capacity,” Owen said.
Across the UAE, demand conditions nonetheless remained favourable in July, with sales rising sharply, though to the least extent since April. Another marked improvement was seen in international demand, as exports rose at the second-strongest pace for nine months. “However, high competition meant that some firms saw a drop in new order volumes. With concerns that clients could switch to rivals, survey reports indicated that non-oil companies often took on greater work than they could manage. Combined with processing challenges and existing projects overrunning, this led to another substantial rise in outstanding workloads, prompting firms to utilise their inputs as much as possible to avoid further backlogs,” said the report.