United Arab Emirates: PMI declines in February but remains in expansionary territory
March 5, 2018
The Emirates NDB Purchasing Managers’ Index (PMI) fell from January’s 56.8 to 55.1 in February. The result marked the lowest reading since September 2017. However, the index was still firmly above the 50-threshold that separates expansion from contraction in the non-oil producing private sector.
A slower rate of growth in output was the main driver of the decline of the index in February, as activity expanded at the weakest pace since May 2017. Nevertheless, and despite a weakening in export order growth, new orders increased at a sharp rate, which indicated robust domestic demand dynamics during the month. Meanwhile, employment growth markedly slowed down compared to the previous month.
Both inventories and purchasing activity levels moderated in February, as firms kept coasting on the inventories they build up in Q4 ahead of the VAT implementation. Additionally, input prices increased at a much slower rate than in January, signaling that the immediate impact of VAT had been largely transmitted in the past month. Selling prices of output were also marginally lower, as firms absorbed part of the input price increases. Lastly, businesses were sharply less optimistic regarding future output levels compared to the prior month, but it should be noted that January’s reading was a strong outlier. Compared to December, forward-looking sentiment was only slightly lower in February.
According to Khatija Haque, Head of MENA Research at Emirates NBD:
“The February PMI survey shows a solid rate of growth in the UAE’s non-oil private sector, although it was slower than we’ve seen in recent months. The key components of the survey point to strong domestic demand but firms were notably more cautious than they were in January about the prospects for output growth over the coming 12 months.”
Author: Joffrey Simonet, Economist