United Arab Emirates: PMI edges up to six-month high in June as strong orders growth causes a surge in backlogs
July 3, 2018
The Emirates NBD Purchasing Managers’ Index (PMI) increased to 57.1 in June, up from 56.5 in May and logging its best performance since December 2017. The index remained firmly above the 50-threshold that separates expansion from contraction in the non-oil producing private sector.
The print was driven by a healthy increase in output growth, robust new orders, and an uptick in business confidence, which was already at historic highs in May. Although total order growth edged up marginally in June, export orders growth softened somewhat. More notably, employment and wage levels were broadly stable in June despite high production levels, which caused backlogs of work orders to increase at the fastest clip in the survey’s history, a signal of capacity constraints. “In our view this is unsustainable, and we expect firms to boost hiring in Q3 if new work continues to rise as strongly as it has in recent months,” explained Khatija Haque, head of MENA Research at Emirates NBD.
On the price front, input cost inflation moderated in June, while output prices continued to decrease, albeit at a markedly slower pace than in May. These developments suggest that, although producers were still compressing their margins to stimulate demand, prices are starting to stabilize after the disruption caused by the VAT introduction in January. Meanwhile, growth in buying activity and inventory levels also softened in June.
Overall, the robust level of production and order books, combined with recently unveiled fiscal stimulus plans from the government, have contributed to propelling business confidence upward from its already record-breaking level in May, and constitute a strong positive signal for economic activity in the non-oil sector over the remainder of the year.
Author: Joffrey Simonet, Economist