UAE’s private business confidence at a five-year high

They are reporting gains in export orders and productivity, but job gains remain limited

Privately-owned businesses in the UAE are at their most confident self in five years.

The monthly UAE’s Purchasing Managers’ Index — a key measure used to define business sentiments — for May was at 59.4, the first time it has reached this score since October 2014 and January 2015. The boost in sentiments was brought on by improved orders flowing into private businesses as well as gains made by them in productivity.

The upbeat sentiments are likely to continue as per the survey by IHS Markit, “with business optimism only fractionally weaker than the previous month’s record high”. More than 80 per cent of respondents are predicting a rise in activity over the year, “linked to hopes that current strong sales growth will continue”.

 

But as has been the case in recent months, the productivity gains have come despite workforce levels remaining more or less unchanged. Clearly, businesses continue to target cost efficiencies at the expense of more jobs.

There was no joy for the workforce, though. “Wages were stagnant as well, so the sharp rise in the volume of business activity is not yet benefitting households,” said Khatija Haque, Head of MENA Research at Emirates NBD. “When the headline PMI was last at a similar level (in October 2014 and January 2015) the survey showed solid growth in private sector jobs, which is not the case this time.

“The strong rise in both output and new orders last month was on the back of continued price discounting by firms as well as stronger growth in export orders.”

 

But businesses would still prefer to go the discount route rather than have unsold stock and all the associated costs from carrying them. The discounting strategy has been going on for the past eight months, and unlikely to wind down immediately. (But the discounting has not hit businesses hard, as cost inflation continues to be on the lower side. Plus, costs on inputs were only up marginally in May, and at the slowest pace in nine months).

On the plus side, local businesses are pulling in higher export orders, rising, the survey says, to the fastest pace in last 10 years. Most of the big orders are coming in from Saudi Arabia and Oman.

But Haque at Emirates NBD warns that the private sector should still be on its guard — “While the rise in the headline PMI indicates faster GDP growth in the UAE’s non-oil private sector, the environment remains a challenging one for businesses.”

May provides a change in tempo for UAE’s private businesses

* A record rise in business activity was recorded last month, with the rate of expansion up sharply from April. “Stronger market demand, marketing activity and the start of new projects all reportedly contributed to the latest increase,” the report notes.

* Staff costs were unchanged in May, with almost all respondents in the survey signalling no change to their wages and salaries from April. This extended the current sequence of only marginal adjustments to staff costs to just over a year.

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Source: Gulf News