UAE: PMI edges up in May on strengthening regional demand
The Emirates NBD Purchasing Managers’ Index (PMI) increased to 56.5 in May from 55.1 in April, on the back of higher domestic and regional demand which supported business activity. The index remained firmly above the 50-threshold that separates expansion from contraction in the non-oil producing private sector.
The result was driven by a surge in output and an acceleration in new orders growth. New orders grew chiefly on the back of export orders, which reached the highest level since November 2015. According to survey respondents, this performance was in part due to a firming up of demand from neighboring GCC countries such as Saudi Arabia.
Domestic new orders were buoyed largely by manufacturers’ continued efforts to compress their margins in a bid to support demand and output levels. Manufacturers slashed their selling prices in May more than at any point since March 2010, even though input cost inflation eased in the same period. Despite elevated output levels and a slowdown in labor cost increases, employment gains in the month remained modest, accelerating only slightly from April’s level.
Commenting on the falling selling prices, Khatija Haque, head of MENA Research at Emirates NBD, noted that:
“This is important to keep in mind when looking at the relatively strong headline PMI reading, as it shows that firms are seeing margins being squeezed in order to maintain order pipelines and output growth. The pricing pressure is not captured in the headline PMI index, […] but it reflects the challenging operating environment and pressure facing many firms to boost efficiency and focus on cost savings.”
Despite this challenging operating environment, firms were nevertheless extremely optimistic in May. Business confidence about the 12-month outlook reached its highest level since the PMI index was first recorded, in early 2012.