Tuesday, Apr 05, 2016

Dubai: The UAE Purchasing Managers’ Index (PMI) rose to 54.5 in March from 53.1 in February, continuing to rebound from its near-four-year low in January.

The PMI data last month signalled a second consecutive pickup in the rate of improvement in the health of the UAE’s non-oil private sector. Business conditions improved at the strongest pace in four months, mainly driven by sharper rises in output and new orders.

The output subindex jumped to 59.7 in March, the highest reading in six months, with firms citing better marketing and new projects as reasons for the faster rise in output last month.

The new orders subindex rose to 56.8 from 54.6 in February, which is striking considering that new export orders actually declined slightly last month. This suggests that domestic demand was the main factor behind faster order growth in March, while the external environment remained relatively weak. Some survey respondents noted a general improvement in market conditions relative to February.

“While the improvement in the Emirates NBD UAE PMI in March is encouraging, the average PMI for the first quarter of 2016 signals a further slowdown in the non-oil private sector of the UAE at the start of this year. Nevertheless, the solid growth in output and new orders in the first quarter suggests that domestic demand is holding up well despite the headwinds of a strong USD and low oil prices,” said Khatija Haque, Head of MENA Research at Emirates NBD.

Total new work increased more quickly in March in spite of a renewed fall in exports. Both employment and input stocks remained in growth territory, but the respective rates of expansion eased slightly. On the price front, input costs rose only modestly, meaning that companies were able to reduce their tariffs amid greater competition.

Employment in the UAE’s non-oil private sector increased further in March, extending the current sequence of job creation to 51 months.

Prices data pointed to subdued cost pressures in March. Staff costs were broadly unchanged last month, helping to keep overall input prices contained. Nevertheless, total input prices rose a little faster in March compared to February. Firms still cut output prices for the fifth consecutive month in a bid to secure new work.

“In the last twelve months, firms have only raised selling prices three times, and all three were marginal rises. To some extent, this probably reflects firms adjusting to the loss of competitiveness due to US dollar strength. We expect margins to remain under pressure this year,” said Haque.

While the improvement in the Emirates NBD UAE PMI in March is encouraging, the average PMI for the first quarter of 2016 at 53.4 was lower than fourth quarter of 2015 at 54.8 and well below the average of 57.9 recorded in the first quarter of 2015, signalling further slowdown in the non-oil private sector of the UAE.

“Output and new orders have risen at a solid rate in the first quarter of 2016, despite the headwinds of a weaker external environment, a strong dollar and low oil prices. We continue to expect overall real GDP growth of 3 per cent in 2016,” said Haque.

By Babu Das Augustine Banking Editor

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