UAE’s non-oil sector activity grows at fastest pace since April

The pace of growth in UAE non-oil companies improved in October to the quickest since April, as firms often raised output in response to higher sales volumes, healthy work pipelines and robust client numbers, a report showed on Tuesday.

At 54.1 in October, 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 – was firmly above the 50.0 neutral mark, signalling an improvement in the sector’s health. The index increased slightly from 53.8 in September.

However, growth of new orders softened to its lowest since February 2023, which contributed to both weaker job creation and a renewed drop in selling charges, S&P said.

On a positive note, business sentiment picked up from September’s 18-month low, with firms expecting growth to continue over the coming year. “This was also helped by the rate of input cost inflation dipping to the lowest since April.

Driving the PMI higher was a sharper expansion in activity levels at non-oil companies in October. More than a quarter of survey respondents (28 per cent) posted a rise in activity over the month, whereas just four per cent saw a decline, the S&P survey showed.

Intakes of new work increased in October, but the rate of growth dropped to its weakest level in 20 months. “Firms often stated that demand momentum was showing signs of waning, with some even seeing sales fall due to strong market competition,” the report said.

Softer new business growth contributed to a weaker rise in employment numbers, which was notably the mildest recorded in two and a half years. Input purchasing growth remained sharp however, particularly as businesses faced further efforts to overturn the recent trend of backlog accumulation. “This trend persisted in October, but eased slightly, as firms reported an increase in work-in-hand that was one of the least-marked for nine months,” the report said.

The slower rise in backlogs was aided by a stronger improvement in supplier delivery times. Nevertheless, with inputs rapidly used to complete both new and existing work, there was little change in firms’ overall stocks, extending the general run of inventory stagnation that has been observed since July.

On prices, the latest survey data was more encouraging, as non-oil firms reported the softest increase in overall input costs for six months. “A slowdown was recorded for both purchase prices and wages, with the latter registering the weakest pace of inflation in almost a year. Nevertheless, some firms reported higher prices for materials, equipment and office supplies,” the report said.

David Owen, senior economist at S&P Global Market Intelligence, said: “The main factor keeping the PMI above its previous reading was an expansion in business activity, which accelerated notably, albeit from September’s three-year low. Nevertheless, there are some reasons to suggest this could hold up, not least that firms are still seeing a long pipeline of work backlogs and ongoing contracts. This may ensure that the non-oil economy can continue to grow even if sales momentum slows further, though it may be more difficult to keep up this pace.”