United Arab Emirates: PMI slumps in February on falling employment amid steep price competition; production outlook worsens
March 5, 2019
The Emirates NBD Purchasing Managers’ Index (PMI) fell from 56.3 in January to 53.4 in February, which marked its lowest level since October 2016. Nevertheless, the index remained above the 50-point threshold that separates expansion from contraction in the non-oil producing private sector.
Less favorable business conditions in February were largely due to a difficult pricing environment, with firms continuing to slash selling prices—at the fastest rate in the survey’s history, after adjusting for seasonal factors such as usual sales promotion. Due to this, firms were under pressure to keep operating costs down in order to safeguard their profitability and margins. Employment levels particularly suffered from these cost-cutting efforts in February, and registered the steepest decline in survey history, with nearly 9% of businesses reporting lower headcounts in the month. On a more positive note, input cost inflation softened and was mild overall.
Moreover, the challenging business environment was exacerbated by waning demand in February, as new order growth fell to an over one-year low while new export demand remained anemic for the third consecutive month. Nevertheless, demand conditions were robust overall, and output growth softened somewhat but remained strong. However, backlogs of work rose sharply partly due to lower staff levels, while other firms reported delays in payments from customers affecting their production schedule and delaying project completion. Furthermore, purchasing activity also accelerated in the month, but inventory building was nonetheless minimal due to firm’s cost-cutting efforts.
Lastly, business confidence regarding production in the next 12 months severely declined in February, with only about half of survey respondents being optimistic about future output, down from nearly 70% in the previous month.
Author: Joffrey Simonet, Economist