UAE: New work grows strongest in three months

UAE companies noted a steep rise in new work during June, with the upturn edging up to the strongest since March, data showed on Wednesday.

According toS&P Global’s UAE PMI report for June, improving demand levels were commonly reported, alongside the acquisition of new clients. “Furthermore, firms enjoyed the sharpest uplift in export volumes since October last year,” a statement said.

Backlogs of work continued to increase at a steep pace at the end of the second quarter, after May survey data signalled a record accumulation due to strong demand and the enduring impact of both the country's floods and the Red Sea crisis. While firms continued to see these factors limit their capacity, the pace at which backlogs accumulated was the least marked for four months, due in part to a speedier supply of raw materials.

Overall growth in the UAE non-oil private sector continued to slow down at the mid-point of 2024, according to the latest PMI business survey.

The seasonally adjusted S&P Global UAE Purchasing Managers' IndexTM (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – slid to 54.6 in June from 55.3 in May. While the index was well above the 50.0 neutral mark and indicative of a robust expansion, it was at its lowest point in 16 months.

“Despite another firm improvement in the sector's performance, sustained competitive pressures, weaker job creation and a subsequent easing in output growth meant that the upturn was the softest recorded since February 2023,” a statement from S&P Global Ratings said.

An overhanging impact from April's floods and supply-chain challenges due to the Red Sea crisis were again observed in June, driving another marked increase in outstanding work. Additionally, firms faced a further sharp upturn in input prices, leading to the quickest increase in average prices charged since April 2018.

The slowing PMI trend was broadly reflective of a softening of output growth across the non-oil private sector. Although the latest survey data pointed to a marked increase in business activity, with just over a quarter of companies seeing output rise, the rate of expansion was the softest since the beginning of 2023. Competitive pressures were reported by several panellists as an inhibiting factor to their operations.

David Owen, Senior Economist at S&P Global Market Intelligence, said: "The UAE PMI highlights a slowing growth trend in the non-oil sector throughout 2024 so far, with the headline index having lost roughly three points since last December. Nevertheless, companies are still enjoying strong customer demand and robust sales pipelines, which are sustaining output expectations and driving purchasing activity.

"The recent surge in backlogs of work is also showing signs of easing, a trend that is likely to continue as the country recovers from April's floods and supply chains adapt to the current situation in the Red Sea. Supplier lead times improved at the strongest rate for eight months, which will be a further boon for businesses.

"With reports of swelling competition in some sectors, firms are keen to retain their competitive edge, which makes the latest uptick in prices even more indicative that businesses are feeling the pain on their balance sheets and having to protect their margins."

As well as capacity pressures, non-oil companies faced a sharp rise in input costs during June. The rate of inflation ticked up to the highest seen in nearly two years. Where prices increased, survey respondents typically cited rises in material costs, shipping fees and overheads. Wages also grew, albeit only slightly.