UAE business optimism remains robust in May

The UAE Purchasing Managers' Index, a gauge designed to give an overview of operating conditions in the non-oil private sector economy, recorded its third successive monthly increase in May to hit its highest since October 2014.

The PMI rose to 59.4 in May from 57.6 in April. Companies responded to the expansions in business activity and near record-high new orders by increasing purchasing activity sharply, but employment was left broadly unchanged, Emirates NBD said in its report.

Stronger market demand, marketing activity and the start of new projects all contributed to the latest increase. Companies largely expect growth to continue over the coming year, with business optimism only fractionally weaker than the previous month's record high, the bank said.

The report said the rate of growth in new business in the non-oil private sector also quickened markedly, and was at a near-record pace. Companies indicated that price discounting helped them to secure new orders besides improving underlying demand. New export orders rose at the fastest pace in the near ten-year survey history, spurred by new business from Saudi Arabia and Oman.

Khatija Haque, head of Mena research at Emirates NBD, said while the rise in the headline PMI indicates faster GDP growth in the non-oil private sector, the environment remains a challenging one for businesses.

The World Bank has said the UAE is expected to be among the fastest-growing Gulf economies this year with a projected 2.6 per cent expansion on the back of continued infrastructure spending and economic stimulus. It also forecast 3 per cent GDP growth by 2020.

The International Monetary Fund in its latest circular on the UAE observed that strengthening the enabling environment for small and medium-sized businesses and encouraging foreign direct investments were additional priorities. The IMF urged levelling of the playing field between government-backed entities and the private sector to foster productivity and diversification of the economy.

According to the Washington-based fund, the UAE's economy is at a turning point as government-led stimulus, Expo 2020 investment, higher oil prices and a pause in monetary tightening by the Federal Reserve, accelerate growth momentum.

Domestic credit growth, higher employment and greater tourist numbers will continue to underpin economic activity, even as the real estate sector faces overhang of supply.

"New growth drivers that are decoupled from oil prices would be needed to sustain strong growth after Expo 2020, with the onus on the authorities to continue building on ongoing structural reform," said the IMF report.

The Emirates NBD PMI report said the strong rise in both output and new orders in May was on the back of continued price discounting by firms as well as stronger growth in export orders.

"Moreover, 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 report said.

The May employment index was only fractionally above the "no-change" level and wages were stagnant as well, so the sharp rise in the volume of business activity is not yet benefitting households. Positive expectations regarding future workloads encouraged stock building midway through the second quarter. Inventories of purchases rose to the greatest extent since March 2018.

While new orders and business activity increased at substantial rate, non-oil companies displayed a reluctance to hire additional staff. Employment was broadly unchanged during the month, with almost all respondents leaving their staffing levels stable.