The UAE’s non-oil private sector recorded a solid expansion in business activity in November, driven by a sharp increase in new orders and output, according to the latest survey data from IHS Markit.
PMI rises to 54.5 in November
The headline seasonally adjusted IHS Markit 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 from 53.5 in October to 54.5 in November, signalling a faster improvement in business conditions. The PMI has remained above the 50.0 no-change mark for 11 consecutive months, indicating a sustained recovery from the COVID-19 pandemic.
The PMI is calculated as a weighted average of five individual sub-components: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
New orders and output surge to three-year highs
The main drivers of the PMI increase in November were the new orders and output sub-components, which both rose to their highest levels since November 2020. Firms reported a sharp rise in new business inflows, reflecting stronger demand from both domestic and foreign markets. This upturn spurred inventory growth levels to rise to a near six-year high, placing some pressure on supply chains and material prices.
Output also expanded at a robust pace, as firms increased their production capacity to meet the rising demand. Some respondents noted that they had launched new products and services, while others mentioned that they had improved their marketing strategies and customer service.
Employment and suppliers’ delivery times improve slightly
Employment in the non-oil private sector showed a modest improvement in November, as some firms hired additional staff to cope with the higher workload. However, the rate of job creation was still subdued compared to the long-run average, as many firms remained cautious about the outlook and preferred to rely on existing staff and overtime work.
Suppliers’ delivery times also improved slightly in November, indicating a marginal easing of supply chain pressures. However, some firms still reported delays in receiving raw materials and finished goods, due to shortages, transportation issues and customs clearance problems.
Cost inflation remains strong, but selling prices are stable
Input costs continued to rise sharply in November, as firms faced higher prices for raw materials, fuel, transportation and staff wages. The rate of input price inflation was the second-fastest since February 2020, behind only August 2020. Some firms were able to pass on part of the cost burden to their customers, but the majority kept their selling prices unchanged, citing competitive pressures and weak demand elasticity. As a result, the output price index remained close to the 50.0 mark, indicating a broadly stable trend.
Business confidence dips, but remains positive
Business confidence in the non-oil private sector dipped slightly in November, but remained positive overall. Firms were optimistic about the prospects of further economic recovery, vaccine roll-out, Expo 2020 and new project opportunities. However, some respondents also expressed concerns about the potential impact of the Omicron variant of COVID-19, rising inflation, geopolitical tensions and increased competition.
