Output growth in the non-oil private sector of the UAE and Saudi Arabia improved during October as employment and new order growth picked up, said the latest Emirates NBD Purchasing Managers’ Index (PMI).

The survey, compiled by IHS Markit, a world leader in critical information and analytics, contains original data collected from a monthly survey of business conditions in the non-oil private sector.
 
UAE

Commenting on the UAE PMI survey, Khatija Haque, head of Mena Research at Emirates NBD, said: “Anecdotal evidence suggested that promotions and price discounts likely contributed to the rise in new orders last month.  Indeed, new export order growth also slowed sharply last month.”     

“Employment was broadly flat in October after declining in the prior two months.  Staff costs, a good proxy for wages, were also largely unchanged last month.  The softness in the labour market is at odds with output and new work growth.  However, the increased margin pressures in October likely contributed to firms’ reluctance to boost hiring.

“Margins were squeezed further in October as input costs rose while selling prices declined.  Input cost inflation was the fastest since April, on higher fuel and raw materials prices.  Meanwhile, output prices declined at the sharpest pace in 3 months in October. Selling prices have declined on average in five of the last six months, as firms have had to compete for new business and to stimulate demand,” she added.  

“Business optimism about future output rose to a record high in October, with nearly 78 per cent of firms surveyed indicating they expected their output to be higher in a year’s time.  The surge in oil prices as well as announcements of increased government spending and Expo 2020 investment may have contributed to improved sentiment last month,” Haque noted.

Key findings:

•    Headline PMI falls to 55.0 in October, from 55.3 in September
•    Sharp increase in new orders
•    Business confidence hits record-high

The headline seasonally adjusted Emirates NBD UAE PMI – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – fell to 55.0 in October, from 55.3 in the preceding survey. The latest expansion remained marked overall and above the historical average nonetheless.

Non-oil private sector companies in the UAE reported another increase in new business during October. Anecdotal evidence suggested that promotional activity was partly linked to the improvement. That said, new orders from abroad grew at the weakest pace since March.

Meanwhile, output increased at a weaker pace in the latest survey period. In fact, the rate of growth was the slowest in six months. The expansion remained sharp overall, however, and was linked to rising inflows of new business.

Business confidence across the non-oil private sector hit its highest since the index began in 2012. Promotional activity, investment surrounding Expo 2020 and new product launches attributed to positive sentiment.

On the price front, output charges fell in October following a marginal rise in September. Respondents linked the fall to competitive pressures in the non-oil private sector. The rate of decline was the fastest since July.

Input price inflation accelerated in the most recent survey period. The rate of inflation was the strongest since April. Nonetheless it remained below the long-run average.

The employment index was a touch above the neutral 50-level, thereby ending a two-month sequence of job shedding. Some firms linked the increase to rising output requirements. The rate of growth was only fractional, however.

Reflecting higher output requirements, firms increased their purchasing activity in October. The rate of expansion accelerated notably since September, and was the strongest registered since February.

Saudi Arabia

Commenting on the Saudi Arabia PMI survey, Haque said: “The headline Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) rose slightly to 53.8 in October from 53.4 in September, as employment and new order growth picked up.  New export orders also recovered after contracting in September, reflecting increased external demand. However, output rose at the slowest rate since April, suggesting that the rise in new work has yet to feed through to actual output.”     

“The employment index rose to 51.3 in October from 50.7 in September.  While this is the highest reading since March, it still indicates only a modest increase in jobs – indeed only 3.1% of firms surveyed indicated they had hired more staff last month.    Staff costs, a good proxy for wages, remained below the neutral 50.0 level for the second month in a row, pointing to fractional wage deflation on average in the private sector.  

“Output prices increased modestly in October after declining in the prior three months.  At the same time, input costs declined slightly last month on lower purchase costs, providing some relief for firms’ margins,” she added.

“Business optimism about future output increased markedly in October, with nearly half of all firms surveyed expecting their output to be higher in a year’s time, while the other half expected current levels of output to be sustained.  The rise in Brent oil prices to over $80 per barrel on average last month – the highest level since October 2014 - likely contributed to improved business sentiment, and the government also signalled increased budget spending in 2019 in its pre-budget statement released in October,” Haque noted.

Key findings:

•    Headline PMI rises to 53.8 in October, from 53.4 in September...
•    ...despite slowest improvement in output since April
•    First fall in input costs in survey history

At 53.8 in October, up from 53.4 in September, the headline seasonally adjusted Emirates NBD Saudi Arabia PMI – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – registered above the neutral 50.0 threshold to indicate an improvement in business conditions. The latest expansion was moderate and above that recorded in September, although it remained weak in the context of historical data.

Output growth in Saudi Arabia’s non-oil private sector slowed during October. The rate of growth was the third-weakest since the survey’s inception in August 2009. That said, the expansion remained solid overall.

The latest survey data saw an acceleration in new business growth. The rate of expansion was marked overall, with October’s improvement extending the current phase of growth to six months. Furthermore, foreign demand improved following a deterioration in September.

Partly due to an increase in new order inflows, non-oil private sector businesses increased their payroll numbers at the greatest rate in seven months in October. That said, the rate of growth was only modest overall and below the series’ historical average.

October saw the first fall in average cost burdens faced by non-oil private sector businesses since the survey began. The rate of decline was slight overall, and linked to competitive pressures among input suppliers and falling wage bills.

Reflecting stronger new business growth, firms ramped up their input buying at a marked pace during October. The rate of growth was unchanged since the preceding survey, and above the average seen since the implementation of VAT at the start of 2018.

Meanwhile, stocks of purchases increased once again during the latest survey period, thereby extending the current sequence of growth to six months.

Finally, business confidence towards future growth prospects hit a 58-month high during October. Anecdotal evidence suggested that firms were optimistic about the impact of business investment and new project wins.  – TradeArabia News Service