The UAE’s non-oil private sector grew strongly in December, recording its 13th consecutive month of growth on the back of sharp expansion in new business.
The seasonally adjusted IHS Markit UAE Purchasing Managers' Index (PMI), an indicator designed to give an overview of operating conditions in the non-oil private sector economy, dropped to 55.6 in December, down only slightly from November's 29-month high of 55.9. The index has signalled a strong improvement in business conditions throughout the final quarter of 2021, thanks to Expo 2020.
Output, which measures business activity, rose to 62.7 in December from 61.6 in November, its highest since July 2019.
But businesses also reported a much stronger rise in cost pressures that was often linked to increased energy and fuel prices. Overall purchasing costs rose at the sharpest rate since March, which often dissuaded firms from purchasing extra inputs.
"The PMI remained close to its recent peak, at 55.6 in December, showing that the benefits to the economy from the Expo 2020 and the loosening of Covid-19 measures had remained strong throughout the final quarter of the year. New work volumes rose sharply, supporting the fastest upturn in business activity for almost two-and-a-half years,” said David Owen, economist at IHS Markit.
New orders continued to rise sharply in December, despite the rate of growth easing to a three-month low. Increased travel, often due to the Expo 2020, and strong demand from clients were again cited as key drivers of sales growth, said the survey.
Despite this, firms continued to struggle to keep up with demand, leading to a sixth successive monthly increase in backlogs. Workforce numbers also rose, albeit marginally, reflecting a further recovery in employment after a long period of decline.
Inflationary pressures often led firms to limit their purchasing activity. Input buying rose at the slowest rate in five months, while stock levels ticked up only marginally. This was in spite of a further improvement in lead times, that was the most marked since July 2020.
"The next few months may prove more challenging, however, depending on how the Omicron variant impacts worldwide travel and local restrictions. Businesses also face the prospect of higher inflation, after the latest data indicated the fastest rise in purchase costs for nine months due to an increase in energy and raw material prices," said David Owen.
Looking ahead, business confidence regarding future activity dropped to a three-month low in December, with just 14 per cent of respondents giving a positive outlook. While firms hope that the strong growth trend will continue, some highlighted the risk of a tightening of business and travel restrictions due to the Omicron wave of the pandemic.
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