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Non-oil business activity rose at the slowest pace in almost three years in July, due to rising competition and input prices, and growing backlogs, according to S&P Global’s UAE Purchasing Managers’ Index (pdf). The country’s headline reading dipped to 53.7 in July, from 54.6 in June, yet still remained above the 50.0 neutral threshold.
The report attributed the ongoing growth to “rising inflows of new work, ongoing projects and improved supply chain conditions.” Demand remained strong with businesses continuing to grow their sales, though at the slowest pace since April, the report said. International demand saw a notable boost, with exports rising at their second-fastest pace in nine months. However, intense competition led to a decline in new order volumes for some firms.
The main reason behind the slowing momentum? Business capacity. Backlogs surged in July due to supply and administrative lags, causing inventory volumes to slightly fall for the first time in almost four years, as firms dug into their inputs to avoid project overruns. Businesses also noted that increased competition drove up backlogs, as non-oil firms looked to retain more clients amid rising competition. Despite this, job creation dipped to a six-month low.
Price pressures were high: Input price inflation hit a two-year high in July, accelerating for the fourth consecutive month on the back of rising material costs, and higher wages and overheads. Selling prices climbed to a six-year peak for the second month running, though fierce competition tempered cost pass-through.
The outlook is still positive: “The PMI suggests that the non-oil sector is expanding solidly and could be strengthened if companies start to get on top of their workloads. Firms are generally optimistic of this, with confidence in the year ahead remaining strong, while hiring also continued in a bid to raise staff capacity,” said S&P Senior Economist David Owen.
DUBAI-
Dubai’s PMI mirrored the UAE’s: Heightened competition drove the PMI down to 52.9 in July, down from 54.3 in June, its lowest reading in two and a half years. The index indicated a slower, yet solid, improvement in the non-oil private sector, with new orders weakening amid rising competition, and output growth slowing to its weakest level since September 2021, leading to lower hiring levels.
Purchasing levels dropped at the second-fastest pace on record in July, due to rising material costs and the need to deplete existing stocks. Input prices surged at their fastest rate in two years, leading to a third consecutive rise in output charges.
ELSEWHERE IN THE REGION-
- Egypt’s non-oil private sector activity dipped slightly to 49.7 (pdf) in July, from 49.9 in June, settling right below the 50.0 mark and reaching its second-highest level in three years;
- Saudi Arabia’s business activity growth fell (pdf) for a third month straight to 54.4 in July, from 55.0 in June, as output levels, purchasing activity, and new exports rose, despite a lull in new orders and growing competitive pressures.
