While January data signalled a solid growth in the UAE’s non-oil private sector, the same in Saudi Arabia saw a major lift amid reports of favourable economic conditions and improving underlying demand, a report said.

UAE

Underpinning the latest upturn were expansions in output and new work, with the latter supported by improved foreign demand. In response to increased new business, companies raised their payroll numbers for the ninth straight month. On the price front, data highlighted divergent trends in January as firms continued to cut their prices charged in spite of a faster rise in cost burdens.

The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.

Khatija Haque, head of Mena Research at Emirates NBD, said: “The January PMI data shows that output and new order growth remains strong, and the improvement in export demand last month is particularly welcome after a relatively soft 2016.”  

Key findings
•    Output expands at sharp rate
•    New order growth accelerates to fastest since September 2015
•    Firms continue to cut their charges, despite stronger cost inflation

Rising from 55.0 in December to 55.3 in January, the headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – posted the highest reading since July 2016. That signalled a notable improvement in the health of the sector, particularly in the context of the trends over 2016 (53.9) and the survey as a whole (54.5).

The upward movement in the headline index was supported by a sharper increase in new work during January, with new business rising at the quickest rate in 16 months. Anecdotal evidence highlighted promotional activities, increased client demand and stronger underlying economic conditions as key factors boosting growth of new business inflows. Moreover, growth of new export orders quickened to a 14-month high.

Panellists scaled up output and input buying to cater for existing and expected new orders. In both cases rates of expansion eased since December, but remained sharp.

On the jobs front, a further increase in payroll numbers failed to alleviate pressures on operating capacity. The rate of backlog accumulation was slight overall as the vast majority of monitored firms (91 per cent) recorded no change in work-in-hand.

Latest survey data pointed to mounting cost pressures in the UAE’s non-oil private sector. Sharp input price inflation was predominantly driven by a marked increase in purchasing prices as staff costs rose only slightly.

That said, output charges decreased for the fifteenth consecutive month in January, with a number of companies citing intense market competition. However, the pace of reduction was slight overall and the weakest seen in five months.

Average lead times improved at a sharp rate that was broadly in line with that registered in the previous month.

Finally, UAE non-oil private sector businesses remained optimistic towards the 12-month outlook for output at the start of the year. Those firms that were upbeat about the year ahead commented on expectations of further improvements in market conditions and strengthening client demand.

Saudi Arabia

The latest upturn was led by sharp increases in output and new business, with data also pointing to improved client demand across foreign markets. Employment increased only marginally, however, despite rising volumes of unfinished work. On the price front, charges rose for the third successive month amid a further increase in input costs.

“The rise in Saudi Arabia’s PMI to the highest level in 17 months is an encouraging start to the year, particularly as it reflects faster output and new order growth in January.  Firms also appear to be more optimistic about the coming 12 months,” said Haque.

Key findings

•    Output expands at sharpest rate since August 2015
•    New order growth reaches 14-month high
•    Staff numbers rise only slightly

The headline seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index™ (PMI) – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – rose from 55.5 in December to 56.7 at the start of 2017 and was consistent with a solid improvement in overall business conditions. Notably, it was the strongest rate of improvement seen for nearly one-and-a-half years.

Stronger growth in output was a key factor leading to an increase in the headline index during January. Output expanded at the strongest rate in 17 months. Anecdotal evidence linked the latest increase to improved market demand.

Volumes of incoming new business rose at the sharpest pace in 14 months in January. A number of panellists mentioned that promotional activities had resulted in sales. Another factor leading total new work to increase was a marked expansion in new export work, which reportedly occurred as firms offered internationally competitive prices.

Companies in Saudi Arabia’s non-oil private sector raised their input buying in order to cater for increased output requirements. Though weaker than the series average, the rate of expansion was sharp overall, and underpinned the fastest rate of inventory accumulation in 16 months.

Despite a further increase in backlogs of work, firms added to their workforce numbers only marginally during January. Higher staff numbers were generally linked to new project start-ups.

Prices data indicated that higher purchasing costs was the predominant driver of an increase in total input prices. Some firms passed on higher cost burdens to clients in the form of greater selling prices. However, the rate of output charge inflation was slight as firms faced intense market competition.

Delivery times improved to the least extent since October 2016 as the vast majority of survey respondents (91 per cent) noted no change in average supplier performance.

Finally, the degree of positive sentiment improved to a five-month high. Companies expect market conditions to continue to improve and boost output over the coming 12 months. – TradeArabia News Service