United Arab Emirates: PMI recovers in January from December's two-year low
February 5, 2019
The Emirates NBD Purchasing Managers’ Index (PMI) rose from 54.0 in December, its lowest level since October 2016, to a seven-month high of 56.3 in January. The index thus climbed higher above the 50-point threshold that separates expansion from contraction in the non-oil producing private sector.
The improvement in business conditions in January came primarily on the back of a strong uptick in output growth, which rose at the fastest rate since last August. New order growth also accelerated after softening in December; however, growth in new export orders fell, seemingly confirming the weakening of external demand observed over the past few months.
Thus, the non-oil economy in January appeared mainly driven by domestic demand, which was supported by ongoing price discounting from firms. Indeed, output prices continued to fall—albeit slightly—in January, as they did in eight of the last nine months. Input cost inflation, on the other hand, accelerated somewhat, further putting pressure on firms’ margins.
Purchasing activity meanwhile gained steam in January, responding to higher output and larger order books, but businesses tapped into their pre-production inventories for the second month in a row. This signals firms’ efforts to keep costs down to preserve profitability amid prolonged price competition. Similarly, employment levels and staff costs rose only modestly in the month, and some businesses reported that cost-cutting efforts prevented them from hiring.
Finally, business confidence regarding output in the year ahead rose in January, with just over two thirds of survey respondents expressing optimism regarding the outlook.
Author: Joffrey Simonet, Economist