UAE non-oil sector rose in April, but heavy rain impacted sales

Businesses were hit when the country faced its worst rainfall in 75 years

The heavy rain in the UAE caused flooding and disrupted operations. Antonie Robertson/The National
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The UAE's non-oil private sector continued to expand in April, although heavy rainfall in the country – the worst since records began in 1949 – disrupted business operations and affected sales.

The headline S&P Global Purchasing Managers' Index for the UAE dipped to 55.3 in April from 56.9 in March. It had reached an almost five-year high of 57.1 in February.

While the PMI growth was the weakest since last August, it remained well above the neutral 50 mark that separates growth from contraction.

New orders last month increased at the slowest pace since February 2023 amid reports that heavy rainfall had disrupted business operations and affected sales, the S&P report said.

"April data highlighted strong overall growth across the UAE non-oil private sector as buoyant domestic economic conditions helped to support long-term business expansion plans," said Tim Moore, economics director at S&P Global Market Intelligence.

"However, the latest survey signalled a sharp slowdown in new business gains in the wake of heavy rainfall and flooding. Companies operating in Dubai recorded a particularly acute loss of sales momentum as adverse weather disruptions hit business and consumer spending."

The storm on April 16 caused major disruption as roads and buildings flooded, transport services stalled and several businesses were forced to close.

People were stuck in offices and Dubai Metro stations, while passengers were also stranded at Dubai International Airport, which cancelled flights amid the flooding.

Adverse weather also contributed to a sharp rise in backlogs of work, the PMI report found. Survey respondents said intense competition for new work resulted in falling average prices charged for the sixth consecutive month in April.

The S&P Global Dubai Purchasing Managers' Index also posted 55.1 in April, down from 58.0 in March and the lowest in eight months.

"This was led by a sharp slowdown in new business growth," the report said.

Outside of rain disruption, survey respondents in the UAE typically cited robust domestic economic conditions and the impact of long-term business expansion plans, alongside competitive pricing strategies.

The country has seen strong economic growth momentum as it continues to focus on the non-oil sector as part of its diversification plans.

The UAE's economy is expected to grow by 4.2 per cent this year, according to the UAE Central Bank.

Strong demand for inputs continued in April, with an accelerated rise in purchasing activity. But inventory strategies were more cautious, with stocks of purchases rising at the slowest pace since March 2022, the PMI report found.

Non-oil private sector companies also indicated higher staffing numbers, driven by new projects and strong demand condition, extending the current period of job creation to two years.

However, the rate of employment growth was the least marked since January.

That came as April data signalled faster rises in both purchasing prices and staff costs, with companies attributing that to increasing raw material prices and efforts to compensate employees for higher living costs.

At the same time, companies reduced average prices again in April, although at the slowest pace so far in 2024. Price discounting was attributed to competitive market conditions and efforts to boost sales.

Looking ahead, optimism regarding prospects for business activity growth in the year ahead remained upbeat in April, despite softening to a three-month low.

"Backlogs of work increased considerably in April, which was linked to temporary business disruptions and elevated pressure on operating capacity. Non-energy businesses are nonetheless still highly upbeat about their year ahead growth prospects," said Mr Moore.

"Many commented on strong sales pipelines and a swift recovery from the impact of heavy rainfall."

The UAE announced several measures to support businesses and individuals affected by the rains.

The country's Central Bank issued a notice to all banks and finance companies to allow a six-month repayment deferment for personal and car loans for customers affected by the storms.

The “deferral shall be without imposing additional fees, interest or profit” charges, or otherwise increase the principal amount of the loan”, the regulator said late last month.

The Central Bank also confirmed that damage to vehicles and homes due to the record-breaking storms would be covered if there is a comprehensive insurance policy against loss and damage.

Meanwhile, Dubai also announced an initiative to provide interest-free loans to support small businesses affected by the rains.

Mohammed Bin Rashid Establishment for Small and Medium Enterprises Development, known as Dubai SME, will also offer grace and postponement periods for existing loans taken by Emiratis who own small and medium-sized enterprises, the entity said.

The special incentive for Dubai SME members allows eligible companies to obtain interest-free loans of a maximum of Dh300,000 ($81,688) with a grace period of six to 12 months, to repair or replace damaged properties.

The UAE also approved a Dh2 billion aid package to support Emiratis affected by the storms.

The funds will be used to address damage caused to the homes and property of citizens.

Updated: May 03, 2024, 9:33 AM