The UAE non-oil private sector gained further momentum in March, continuing the trend observed throughout the first quarter of 2017, while that of Saudi Arabia saw sharp expansion in new orders and output supporting the overall upturn.

UAE

The overall expansion was driven by sharper increases in output and new orders, as well as a record rise in stocks of purchases. Firms raised their payroll numbers slightly, while there was evidence of ongoing pressure on operating capacity. Prices data suggested that the UAE’s non-oil private sector faced intense market competition, as the vast majority of firms registered no change in output charges despite increased cost pressures.

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.

Commenting on the Emirates NBD UAE PMI, Tim Fox, head of Research and chief economist at Emirates NBD, said: “The latest PMI survey for the UAE points to encouraging growth in the non-oil economy through the first quarter of 2017. What was particularly notable in this report was the degree of optimism among local firms about the potential for further improvements in client demand, which was evident in a strong rise in purchasing activity.”  

Key findings

•    Expansion in business activity picks up to a 25-month high
•    New order growth quickens to the sharpest rate in over one-and-a-half years
•    Record increase in stocks of purchases

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 – picked up to a 19-month high of 56.2 in March, from 56.0 in February. The reading was consistent with a sharp improvement in business conditions. As a result, the quarterly average for the first quarter of 2017 (55.8) was the strongest in one-and-a-half years.

The increase in the headline index was supported by sharper growth of business activity. In fact, the rate of expansion accelerated to the sharpest in 25 months. New projects, a further general improvement in economic conditions and market demand were reported as factors behind output growth.

At the same time, growth in new order book volumes quickened to a 19-month high and was sharp overall. According to anecdotal evidence, more construction activity, good quality products and promotional activities were behind the rise in new orders. New export business also expanded in March.

Reflective of increased output requirements, firms increased their staffing levels. However, the rate of job creation was only modest. Subsequently, the rate of backlog accumulation edged up to a six-month high. Companies reported that higher demand had contributed to rising work outstanding.

Higher new order intakes prompted firms to scale up buying levels. In fact, the rate of expansion was the most marked in over one-and-a-half years. Subsequently, the rate of inventory accumulation accelerated to a survey-record high. Respondents commented on new order intakes and expectations of further improvements in client demand.

Firms faced increased cost pressures amid a general rise in market prices due to higher demand for raw materials, according to anecdotal evidence. The rate of overall input price inflation quickened in March. However, firms registered no change in output prices. Firms that raised charges passed on higher cost burdens to clients, while other firms reportedly offered discounts due to intense market competition.

Saudi Arabia

Companies raised input buying to the greatest extent in 18 months in the first quarter of 2017. Despite greater output requirements and increasing backlogs, companies raised their payroll numbers only marginally. Meanwhile, input price inflation climbed to a seven-month high.

Commenting on the Emirates NBD Saudi Arabia PMI, Fox said: “Saudi Arabia's non-oil economy appears to be holding up well amidst ongoing reductions in oil production. Unlike previous periods of expansion however, gains in output and new orders are not being matched by new job growth, while competitive pressures appear to be keeping a lid on the prices firms are able to charge to customers.”

Key findings

•    Sharp expansions in new orders and output
•    Job creation maintained in March
•    Input cost inflation at seven-month high

The headline seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) slipped from February’s 18-month high of 57.0 to 56.4 in March. Nevertheless, the latest reading was consistent with a marked improvement in the overall health of the sector. Moreover, the PMI average for the first quarter of 2017 (56.7) was the highest in one-and-a-half years.

The above-50.0 reading for the headline index reflected steep increases in output and new work, though the respective rates of expansion eased since the preceding month. Anecdotal evidence indicated improvements in economic conditions, new projects, more construction work and increased marketing efforts. The rise in new business was mainly driven by domestic demand as growth of new export orders eased to the weakest in four months and was modest. Firms that reported higher levels of new work from abroad, commented on increased marketing efforts, good quality of products and internationally competitive prices offered.

In response to greater output requirements, firms raised payroll numbers. However, the rate of job creation was only marginal. This in turn led to higher volumes of outstanding business. In fact, the rate of accumulation was marked as existing resources were insufficient to cope with greater workloads.

Purchase prices rose at a solid pace in March, which firms attributed to greater demand for raw materials. However, businesses were restricted in their ability to fully pass on higher cost burdens to clients amid intense competition.

Higher volumes of incoming new business prompted firms to raise their input buying. The pace of expansion accelerated to the strongest in one-and-a-half years. Concurrently, the rate of accumulation of input stocks quickened to a 19-month high. A number of firms commented on more projects and forecasts of further improvements in demand as the main factors leading to stock-building initiatives.

Finally, firms remained strongly optimistic towards output over the coming year due to projects in the pipeline, construction work and expectations of further improvements in market demand. – TradeArabia News Service