UAE: PMI remains in expansionary territory in July

UAE PMI July 2020

UAE: PMI remains in expansionary territory in July

The IHS Markit Purchasing Managers’ Index (PMI) increased to 50.8 in July from 50.4 in June. As such, the index inched further above the 50-threshold, marking the second consecutive month of improving business conditions in the non-oil private sector.

The headline reading reflected a continued rise in output and new business and came against the backdrop of improving domestic customer demand. However, foreign demand contracted slightly from the prior month, while employment levels dropped in the month as firms continued their efforts to cut payroll costs. On the price front, input costs rose for the third consecutive month on higher raw material costs, while output costs fell for the 22nd straight month amid steep competition for sales.

Looking ahead, firms’ outlook for the coming year weakened slightly in July, despite government efforts to kick start the economy. However, sentiment remained positive as company’s anticipated a rise in sales and the rescheduled Expo 2020—now slated for October 2021—bolstered optimism.

David Owen, an economist at IHS Markit, commented:

“UAE business activity continued to expand at a solid pace in July, as firms enjoyed another upturn in new work. The further reopening of the economy, including the lifting of curfew measures, helped to reinvigorate consumer spending. It was also particularly evident that future output sentiment depended on how demand recovered in the coming months, as firms hope that the economy will make strides back to pre-COVID-19 output levels over the second half of 2020.”

Scott Livermore, chief economist at Oxford Economics, echoed this mild optimism, noting:

“The non-oil economy in the UAE is closely integrated with the rest of the world and stands to benefit as the global economy rebounds after the worst of the coronavirus pandemic. […] We forecast a strong recovery underpinned by expansionary fiscal policy and Dubai’s continued growth as a trade, tourism and business hub for the region. At the same time, lower interest rates in the US over the medium term, which are mirrored in the UAE, may see lower borrowing costs for businesses and households, helping to support consumption and investment.”

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