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Output in the UAE’s non-oil private sector surged to a five-month high in May on increased business activity and new orders, but costs rose to their highest since 2018, a survey showed on Friday.
The seasonally adjusted S&P Global UAE Purchasing Managers' Index (PMI) rose to 55.6 in May from 54.6 in April, the highest reading in 2022 so far. The indicator remained well above the 50.0 mark that separates expansion from contraction.
This was one of the strongest improvements in the health of the non-oil economy in the last three years.
David Owen, an economist at S&P Global, said the increase indicated that the economy continues to recover strongly from the pandemic.
“Despite the end of the Expo 2020, firms continued to cite rising order book volumes and increased tourism, although this was partly helped by a renewed decline in average prices charged.”
Businesses reported a sharper increase in new work as demand rose, with some firms noting that increased marketing and renewed price discounting helped to lift sales. Demand from foreign customers also expanded during May.
The rise in new orders also meant that firms added jobs across the non-oil sector in May. While the rate of job creation was the fastest seen for seven months, it was, however, insufficient to avoid constraints on business capacity.
However, the main headwind to the sector was inflation.
“Input costs rose at the quickest rate since November 2018, as companies widely noted higher fuel prices as well as increased costs for a wide range of materials such as aluminium, steel, wood and chemicals,” said Owen.
While PMI data suggested that companies are choosing to absorb extra costs rather than pass them onto customers, “this is unlikely to continue indefinitely," he added.
Looking ahead to the next 12-month period, businesses were hopeful the growth in demand and sales would continue. "The degree of confidence picked up slightly from April, but was weak compared to the survey trend," the report said.
(Writing by Brinda Darasha; editing by Seban Scaria)
