United Arab Emirates: PMI bounces back from VAT-induced slump in April on higher new orders growth
May 3, 2018
The Emirates NBD Purchasing Managers’ Index (PMI) increased to 55.1 in April from 54.8 in March on the back of a pick-up in new orders growth, following three consecutive months of decline in the index following the implementation of VAT in January. The index remained firmly above the 50-threshold that separates expansion from contraction in the non-oil producing private sector.
The upturn in April was primarily driven by robust growth in new orders, which accelerated thanks to higher foreign demand, and stronger output growth following March’s sharp slowdown. In response, job creation ticked up in April, although the employment sub index remained below the historical average. Backlogs of work rose to the highest level in nearly three years, which could prompt firms to rev up hiring. In addition, forward-looking business confidence soared in April, as more than half of responding firms declared being optimistic about output 12 months into the future.
Daniel Richards, MENA Economist at Emirates NBD commented on firms’ confidence:
“An expected economic upturn, new product launches and improved marketing strategies were all cited as factors behind the positive sentiment last month. We believe higher oil prices have also contributed to positive sentiment in the private sector.”
On the price front, a sharp rise in input costs and higher wages finally fed through to sellers’ prices, which increased after two months of decline as the introduction of VAT forced manufacturers to compress their margins to support consumer demand. Meanwhile, purchasing activity growth was broadly stable from March, but inventory growth slowed markedly, indicating that firms continued to work through large stocks of inventories built up before the VAT took effect.
UAE Fixed Investment Forecast
FocusEconomics Consensus Forecast participants expect fixed investment to increase 5.0% in 2018 and again in 2019. Panelists expect GDP to expand 2.9% in 2018 and see the economy growing 3.3% in 2019.
Author: Lindsey Ice, Economist