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UAE non-oil sector continues to expand sharply in January

After reaching near record highs at the end of 2021, growth begins to slow down, according to IHS Markit

UAE's non-oil sector continued to expand sharply in January, according to the latest PMI survey data released on Thursday.

Business activity was once again boosted by strong sales from the Expo 2020 in January, alongside a broad recovery in economic conditions from the pandemic. The latest survey data showed that a sharp rise in new work led to a further marked expansion in output across the non-oil sector.

The headline seasonally adjusted IHS Markit UAE Purchasing Managers' Index (PMI), a composite indicator designed to give an overview of operating conditions in the non-oil private sector economy, dropped from 55.6 in December to 54.1 in January.

The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.

The January PMI signalled a strong improvement in operating conditions, but one that was the slowest seen since September last year.

However, after reaching near-record highs at the end of 2021, there were signs that growth had begun to slow down – rates of expansion in both activity and sales softened to four-month lows. This was partly due to a rise in Covid-19 cases linked to the Omicron variant which had reportedly curbed customer spending. Foreign sales were also affected, as new export orders rose only marginally and at the softest rate in five months.

"UAE's non-oil sector entered 2022 on a strong footing, as businesses continued to enjoy the benefits of a recovery in economic conditions and increased demand from the Expo. The latest data further solidified this footing, but perhaps showed the first signs that growth had started to tail off,” said David Owen, Economist at IHS Markit.

"Part of this was down to the Omicron surge as rising cases led to increased uncertainty among consumers and businesses, as well as tapering the rebound in tourism. The sector could quickly recoup this momentum in the coming months as the Omicron wave appears shorter than previous ones, although firms face additional challenges from stronger inflationary pressures, global supply chain problems and a possible dip in activity once the Expo ends."

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Businesses had to contend with stronger input price pressures in January, as the rate of inflation ticked up to the highest recorded since last March. Raw materials were often cited as up in price, while global transport costs continued to surge upwards due to supply-chain bottlenecks. The rise in expenses placed even greater pressure on firms’ margins, as output charges continued to fall amid efforts to boost sales.

Staff hiring was also limited by inflationary concerns. The rise in employment in January was marginal and slightly weaker than in December, but extended the current run of job creation to eight months.

Finally, output expectations among non-oil businesses improved slightly in January, with companies signalling stronger forecasts than seen on average throughout 2021. Growth predictions were again closely tied to hopes of a broad recovery in market demand and an easing of the pandemic.

-waheedabbas@khaleejtimes.com