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UAE starts Q2 on strong footing as new businesses post 17-month high growth

Customer demand is strongest since September 2020

Published: Wed 3 May 2023, 5:22 PM

By
Issac John

Shoppers at a store in Dubai. In the UAE, the relatively mild uptick in business expenses encouraged a number of companies to offer price promotions. - KT file

Driven by the fastest growth in new business since November 2021, business conditions at private non-hydrocarbon sectors in the UAE improved at a sharp and accelerated rate in April, starting the second quarter on a strong footing.

The latest purchasing manager index survey data shows that businesses responded to the improving conditions by increasing output sharply and adding to both their inventories and staffing levels. A solid drop in selling prices partly spurred a surge in customer demand.

David Owen, a senior economist at S&P Global Market Intelligence, said a rapid increase in new orders and retreating inflationary pressures led to a stronger rate of expansion across the non-oil economy resulting in the PMI’s rise for the third month running.

While customer demand, the strongest recorded since September 2020, was helped by receding cost pressures, the S&P Global UAE PMI rose further from 55.9 in March to 56.6 in April, signalling a robust improvement in the performance of the non-oil economy.

The Central Bank of the UAE has projected the country’s annual real GDP growth to expand by 4.3 pe rcent in 2024 while the International Monetary Fund in its recent forecast said that the UAE economy will expand at a faster pace in 2024 and lowered the global growth outlook slightly amidst uncertainty in the global financial system. It projected a GDP expansion of 3.9 per cent as compared to 3.5 per cent this year.

The Institute of International Finance said last week that the new corporate tax that will be effective from June 1, 2023, will help boost the UAE’s non-hydrocarbon revenues in 2024 and 2025, enabling the nation to maintain the fiscal breakeven oil price to below $65 per barrel. Garbis Iradian, Mena chief economist at the IIF, said non-hydrocarbon real growth in the UAE will remain strong at 4.8 per cent as the tighter global financial conditions will have a limited impact on economic activity in the UAE.

The S&P Global’s New Orders Index rose to its highest level since November 2021 in April, as improving market conditions and rising client demand underpinned a strong sales performance. In fact, just over 30 per cent of businesses saw new orders pick up from the previous survey period, against 7.0 per cent which saw a decrease.

The upswing in business conditions was also experienced across the GCC with April’s PMIs showing that activity in private non-hydrocarbon sectors started Q2 on a robust note.

In the UAE, the relatively mild uptick in business expenses encouraged a number of companies to offer price promotions, which helped to drive an upturn in sales that was the sharpest recorded since late-2021, Owen noted. “Efforts to improve services and boost marketing also underlined growth, according to panellists, and supported a robust expansion in activity,” he added.

Employment numbers grew as companies maintained their efforts to build capacity levels, resulting in another marked expansion of input stocks. “While the rate of job creation was slower than March’s near seven-year record, it was still stronger than the survey trend. Rising demand and rapid capacity improvements helped to drive confidence towards future activity higher for the fourth successive month and to its strongest level since September 2022,” said Owen.

The report noted that the rise in employment, despite easing from March’s near seven-year record, was elevated and above the long-run trend, as firms commented on efforts to combat high workloads and minimise capacity pressures. “These expansions curbed the growth of outstanding work, which eased to the slowest in the current 22-month sequence of backlog accumulation. On the other hand, strong hiring fed through to a rise in staff costs which, while marginal, was the fastest seen for nine months. On the purchasing side, the latest data signalled a steep increase in input buying that was much sharper than in the previous month.”

Elsewhere in the region, Saudi Arabia’s headline PMI rose to 59.6 in April from 58.7 in March, just a touch below the eight-year high of 59.8 it reached in February. And in Qatar, the PMI rose from 53.8 in March to 54.4 in April, which was the strongest reading since July 2022.