United Arab Emirates: PMI increases to 20-month high in March
April 5, 2021
The IHS Markit Purchasing Managers’ Index (PMI) increased to its highest value since July 2019 in March, clocking in at 52.6, up from February’s 50.6. Consequently, the index moved further above the 50-point threshold, indicating an improvement in business conditions in the non-oil private sector.
March’s improvement was chiefly due to strong output growth, which increased at the sharpest rate in over a year and a half. Moreover, as the Covid-19 vaccine was gradually rolled out, business confidence, demand and spending rose in March. Furthermore, construction work picked up in the same month, with a rise in new projects and a resumption of old projects. Business expectations improved to an eight-month high in March, boosted by hopes of the lifting of Covid-19 restrictions in coming months.
On the price front, input prices rose at the strongest rate since November 2018, largely due to supply issues—long delivery times on raw materials and input availability—and because of higher transport prices as the global container shortage continued. However, some firms continued to offer discounts, resulting in the softest drop in output prices in two-and-a-half years. As a consequence of rising costs, some businesses reduced staff levels in March, with employment levels falling mildly.
Commenting on the positive evolution of the pandemic in the UAE, Scott Livermore, chief economist at Oxford Economics, explained:
“New cases of Covid-19 in the UAE have begun to edge down as tighter lockdown conditions and rapid roll-out of vaccines start to take effect. Although it may be a few weeks yet […] it is likely that measures will be gradually eased soon.”
Commenting on the importance of the tourism industry, they added:
“Travel and tourism accounts for about 16% of GDP in the UAE […] The postponement of Expo 2020 ended hopes of a rebound in H2 last year, but it does create space for Expo Dubai to achieve its target and contribute to growth later this year. Expo 2021 will lift tourism.”
Author: Marta Casanovas , Junior Economist