UAE: PMI hits 16-month high in December

UAE PMI December 2020

UAE: PMI hits 16-month high in December

The IHS Markit Purchasing Managers’ Index (PMI) climbed up to 51.2 in December, from November’s 49.5. Consequently, the index broke through the 50-threshold separating expansion from contraction, signaling an improvement in business conditions in the non-oil private sector. The reading also marked the highest print since August 2019.

December’s result reflected the second-strongest rate of output growth since September 2019, supported by a sustained increase in client demand and an improvement in market conditions. New business also rose at a higher pace than in November, likely due to stronger foreign demand, specifically from Gulf countries, while exports grew at the sharpest rate in 15 months, likely supported by continued discounts. However, employment levels continued to decrease in the period as the pace of job shedding increased compared to November.

On the price front, input costs were largely unchanged as cost pressures remained subdued. As such, firms lowered selling prices in a bid to compete for clients. Lastly, firms’ outlook for the coming 12-month period picked up only mildly from November’s record low, as businesses see activity remaining muted in 2021.

Commenting on the factors leading to December’s result, as well as some challenges, David Owen, economist at IHS Markit, noted:

“Rising output and new orders, particularly from abroad, were key drivers of the renewed improvement in non-oil business conditions in December. […]. However, the jobs market continued to act as a drag on the sector, as employment fell again at the end of the year. Moreover, the rate of job shedding quickened, as cash flow shortages meant some firms were unable to pay for new staff. The subdued rate of cost inflation may help struggling businesses in the near term.”

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