UAE: PMI rises in November despite intensifying pressure on firms’ margins
The Emirates NBD Purchasing Managers’ Index (PMI) rose to 55.8 in November, from 55.0 in October. Consequently, the index again landed above the 50-point threshold that separates expansion from contraction in the non-oil producing private sector.
An important element of this month’s release was the output price sub-index, which fell at the fastest rate since October 2009, indicating strong pressure for firms to reduce their selling prices and thus, their margins in order to support demand, even though input cost inflation accelerated in the month. In turn, output and new orders–both domestic and foreign—accelerated in November, propping up the headline PMI reading and signaling that lower output prices were effective. Employment growth ticked up marginally to a six-month high, as did staff costs.
Purchasing activity rose sharply in November to the highest level so far in 2018, but stocks of purchases remained unchanged. According to Khatiia Haque, head of MENA research at Emirates NBD, this suggests that “firms are unwilling to invest in pre-production goods until they are actually required. […] That input costs rose at the fastest rate since January even as firms were cutting output prices speaks to the challenging business environment and the pressure this is putting on firms to compete on price.”
Nevertheless, business confidence regarding future output levels remained very optimistic in November, though it ticked down from October’s all-time high.