The UAE non-oil companies experienced unprecedented growth in outstanding business levels in May, as robust sales pipelines and the lingering effect from April’s flooding crisis put immense pressure on business capacity. Despite these challenges, the private sector’s overall performance remained robust, with sharp increases in output and new orders, although the former slowed to a 16-month low.
In response to capacity constraints, firms intensified efforts to boost staffing and input purchases, while supply chains showed improvement following the previous month’s disruptions. However, the heightened demand for inputs and the necessity to replenish stocks exacerbated price pressures. Input costs surged at their highest rate in nearly two years, prompting the steepest increase in prices charged since April 2021.
The seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) was unchanged from April’s eight-month low of 55.3 in May. However, the reading was still above its long-run average of 54.4, indicating a robust improvement in operating conditions.
“UAE non-oil companies continued to face relentless pressure on business capacity in May, as the latest PMI survey data signalled the largest-ever increase in backlogs of work,” noted David Owen, Senior Economist at S&P Global Market Intelligence.
“The findings suggest that firms have a lot of work to do to get on top of their workloads, including rebuilding output levels, hiring workers and boosting inventories,” he added. “May data signals that hiring and purchasing efforts did pick up, though with the added effect of contributing to higher inflationary pressures.
“As such, the focus for the next few months looks to be the recovery of the sector from this crisis. Nonetheless, with demand still strong, firms should be in a good position to resume their robust growth once capacity has been restored.”
Business activity
Business activity growth slowed to a 16-month low, with some companies facing operational disruptions. Nevertheless, the increase in activity remained strong by historical standards. With capacity challenges persisting, backlogs of work surged at the fastest pace since the survey’s inception in 2009. Alongside the flood impacts, firms also cited difficulties stemming from the Red Sea crisis and administrative issues. Positively, vendors managed to improve delivery times compared to April.
To address capacity constraints, non-oil companies increased their workforce in May, achieving the highest rate of job creation in three months. Purchasing activity also intensified, reaching its peak since last November, driven by strong sales pipelines and output needs. Some firms reported replenishing items damaged during the floods.
According to surveyed firms, higher input spending aggravated price pressures, as overall input costs rose at the sharpest rate since July 2022. Rising fuel prices and higher wages were also highlighted as reasons for stronger inflation, with the rate of pay growth the quickest in just over six years.
Average prices charged by non-oil companies rose for the first time in seven months in May, reflecting greater efforts to pass through higher input costs to clients. Although marginal, the uplift in charges was the fastest recorded in just over three years.
Looking ahead, business confidence strengthened in May, buoyed by expectations of stabilising economic conditions, higher sales, increased profits, and promotional activities.
Dubai PMI declines to 15-month low
In Dubai, the PMI fell to its lowest level in 15 months, dropping to 54.7 in May from 55.1 in April, still indicating strong business conditions. New order growth modestly recovered after hitting a 13-month low in April, with some firms reporting a rebound in client activity post-flood disruptions. Supplier performance improved significantly, with lead times shortening at the fastest rate since last October. Inflationary pressures intensified in May due to higher raw material and petrol prices. Overall input costs rose at the quickest rate since July 2022, leading to the first increase in output prices.
