The health of the non-oil private sectors of both the UAE and Saudi Arabia improved at the fastest pace in 2018 during June, buoyed by strong inflows of new business and output growth, said Emirates NBD in its latest PMI survey.

UAE

Promotional activity helped to stimulate client demand, reflected by new order books expanding at the fastest pace since December last year. Despite firms ramping up output, backlogs of work built up at a record pace. Meanwhile, input price inflation further softened from the peak seen in January.
    
The survey, sponsored by Emirates NBD and produced by IHS Markit, a world leader in critical information and analytics, contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.

Commenting on the UAE PMI survey, Khatija Haque, head of Mena Research at Emirates NBD, said: “The headline PMI rose to a 2018-high in June, reflecting a sharp increase in both export and domestic new orders as well as output.  In spite of this strengthening demand, there was almost no job growth or increase in wages in the UAE’s private sector last month, as firms continued to focus on efficiency and cost containment.”

Key findings

•    Headline PMI rises to 57.1 in June, from 56.5 in May...
•    ...driven by stronger inflows of new business and faster output growth
•    Backlogs of work build up at a survey-record pace

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 – rose to 57.1 in June, up from 56.5 in May. The latest expansion in the non-oil private sector was the strongest in 2018 so far and well above the series’ historical average (54.7).

Output growth across the non-oil private sector accelerated to a seven-month high during June’s survey. Rising output has been recorded continuously since February 2010, with the latest increase sharp overall. According to anecdotal evidence, higher business activity was associated with strong inflows of new work.

Promotional activity, business investment and solid client demand from both domestic and export markets was linked to June’s steep expansion of new order books. The rate of growth was the strongest in the year-to-date. Reflecting a sharp improvement in new business and easing job creation, backlogs of work increased at a record pace in June.

On the price front, average cost burdens faced by non-oil private sector companies increased at a slower pace in June. In fact, the rate of input price inflation was only slight overall and the weakest in three months. Easing staff cost and raw material price inflation contributed to lower overall input cost inflation in June. Meanwhile, price discounting continued for the second month running, albeit to a softer extent than that seen in May.

Business confidence hit a fresh-survey high in June. According to anecdotal evidence, business investment, marketing initiatives and an anticipated economic upturn underpinned positive sentiment.

Purchasing activity growth eased to a two-year low during the latest survey. That said, the pace of expansion remained solid overall. Meanwhile stocks of purchases held at non-oil private sector firms increased at the slowest pace in 25 months during the most recent survey.  Some firms noted that they had looked to streamline operations.

Saudi Arabia

An upturn in output and new order growth were the key components behind the latest expansion. Furthermore, many panel respondents noted sharper capacity pressures, which led to the fastest build-up in backlogs of work in 11 months. In terms of inflation, both input and output price pressures remained subdued in the context of historical data.

“The rise in the headline PMI to the highest level this year reflects a strong recovery in new orders (including export orders) and output,” said Haque, commenting on the Saudi Arabia PMI survey.

 Firms had been anticipating this for several months, as reflected in the very strong ‘future output’ readings since February.  It isn’t surprising then that the future output index declined sharply in June, with most firms now expecting their output to be relatively stable over the next twelve months.”    

Key findings

•    Headline PMI rises to 55.0 in June, from 53.2 in May
•    Sharp and accelerated output and new order growth
•    New business from abroad returns to expansion

At 55.0 in June, up from 53.2 in May, the headline seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) recorded its highest reading in 2018 so far. The figure was well above the neutral 50.0 mark, thereby indicating a marked improvement in business conditions. That said, the rate of growth remained below the average registered since the survey’s inception in August 2009.

Output growth accelerated at the end of the second quarter, with the latest expansion being the strongest since December last year. Firms frequently linked higher output to strong inflows of new business and improving market conditions.

New orders in Saudi Arabia improved at the fastest rate in six months during June. New business was sourced from both domestic and foreign sources, with the latter returning to growth for the first time since January during the most recent survey.

Reflecting higher inflows of new orders from both domestic and foreign sources, capacity pressures built up across the non-oil private sector, as signalled by a solid rise in work outstanding. In fact, backlogs of work increased at the fastest pace in 11 months in June.

Despite a solid increase in new orders and work outstanding, firms hired additional staff at a rate below the historical average. The rate of job creation was slight overall, albeit fractionally above that in May.

Input price pressures faced by firms in Saudi Arabia’s non-oil private sector increased at the fastest pace in four months during June. According to anecdotal evidence, rising raw material prices led to higher cost burdens. That said, in the context of historical data the latest rise in input prices was subdued.

Output charge inflation eased since May, with some firms linking a fall in selling prices to promotional activity. The rate of inflation remained below the long-run average.

Despite the upturn in business conditions, optimism towards future growth prospects eased to a nine-month low, and was much weaker than seen in the previous month. – TradeArabia News Service