United Arab Emirates: PMI declines in June but remains near May's over four-year high
July 3, 2019
The Emirates NBD Purchasing Managers’ Index (PMI) fell from 59.4 in May—the highest reading since October 2014—to 57.7 in June. As a result, the index stayed firmly above the 50-point threshold that separates expansion from contraction in the non-oil producing private sector. Moreover, June’s reading puts the average PMI print over the second quarter at 58.2, its highest level since Q4 2014, indicating that non-oil sector growth accelerated sharply in the quarter.
The dip in the reading in June came largely on the back of slower—yet still solid—output growth. Nevertheless, underlying demand conditions remained robust, as new order growth matched the stellar print logged in May—the highest on record—and growth of new export orders even inched up from May’s record high, thanks largely to high regional demand from GCC partners such as Saudi Arabia. Against this backdrop, purchasing activity ramped up again, reaching a record high, while inventories increased—albeit at a more modest pace than in May, presumably due to firms’ improved inventory management capacity. Backlogs of work also increased at a softer pace than in the previous month.
Despite the healthy demand, the competitive environment remained tough, and firms continued to slash their output charges in a bid to capture additional business. With downward pressure on their margins, companies were again reluctant to hire, and the employment levels only inched up slightly in the month, while staff costs actually decreased marginally—suggesting downward wage pressures amid a possible excess supply of labor.
Lastly, firms remained highly optimistic regarding future business conditions, though sentiment ebbed somewhat from May’s record high. Many survey respondents cited Expo 2020 as a factor for optimism.
Author: Joffrey Simonet, Economist