UAE non-oil sector signals strong expansion in March

UAE non-oil sector signals strong expansion in March

Posted on 6 April 2022

Employment levels in non-oil businesses picked up, marking the tenth rise in as many months

The UAE’s non-oil sector signalled strong expansion in March, but one that was marred by intensifying inflationary pressures linked to rising commodity prices.

The headline seasonally adjusted IHS Markit UAE Purchasing Managers’ Index (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – posted 54.8 for the second month running in March. The reading was well above the 50.0 neutral mark to indicate a further sharp improvement in operating conditions.

The rate of new business growth at UAE non-oil firms was unchanged since February and remained close to the post-pandemic high seen in November 2021, according to S&P Global UAE PMI.

The new orders rose and panellists often linked this to a further uplift in client demand as markets recovered from Covid-19 lockdown measures. While domestic sales were the main driver of growth, there was also a modest expansion in the new export business.

The strong rise in demand fed through to a substantial increase in business activity during March, with nearly a quarter of surveyed firms signalling output growth.

As well as higher demand, panellists stated that marketing efforts and new product releases supported overall activity.

David Owen, Economist at S&P Global, said a strong rise in demand across the non-oil economy in March masked the concerning threat posed by global commodity prices.

“With energy and raw material costs rising around the world in response to the Russia-Ukraine war, UAE firms faced a sharp increase in purchase prices and the most marked rise in overall price pressures for more than three years.”

At the same time, cost pressures quickened to a 40-month high as businesses saw particularly strong rises in the price of fuel and raw materials due to supply concerns relating to the war in Ukraine.

According to S&P Global UAE PMI, the rate of input cost inflation was faster than the series average and solid. Efforts to pass-through higher costs to customers at some businesses meant that average output charges fell to the least extent in the current eight-month run of decline.

The sharp rise in input prices led to a slowdown in input buying growth in March, as firms looked to limit cost burdens and draw from current stocks in order to meet customer demand. While the latest rise in the quantity of purchases was solid, it was much softer than that seen in February. After 15 months of consecutive growth, stocks of purchases were stable at the end of the quarter.

At the same time, employment levels in non-oil businesses picked up, marking the tenth rise in as many months. However, despite quickening to a three-month high, the rate of job creation was still only marginal, as some efforts to cut labour costs weighed on overall hiring activity.

With staff capacity expanding only slightly despite stronger demand pressures, businesses saw a further solid increase in backlogs of work. Moreover, the rate of accumulation was the fastest since last October. Some firms noted that previous shipping delays had contributed to the rise in unfinished orders, although current data suggested an improvement in supplier delivery times that was the joint-quickest since July 2020.

Finally, UAE companies remained confident of a rise in activity over the year ahead in March, often citing recent improvements in sales and overall economic conditions. However, concerns about inflation, shipping and the war in Ukraine weighed partly on overall confidence.


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