UAE’s non-oil business activity rebounds after July slump

Businesses remain confident output growth will be sustained over the coming year, economist says

Business activity in the UAE’s non-oil private economy sector also continued growth momentum in August 2024. Victor Besa / The National

Business activity in the non-oil private sector of the UAE rebounded in August, after hitting its lowest level for nearly three years in July, with growth regaining momentum as companies received new work orders.

The seasonally adjusted S&P Global purchasing managers’ index reading of the Arab world's second-largest economy increased to 54.2 in August, after dropping to a 34-month low of 53.7 in July, well above the neutral 50 mark that separates growth from contraction.

Underlying the expansion of the Emirates' private sector non-oil economy in August was the level of new orders recording their quickest rise since March. Meanwhile, pressure on operating capacity eased as supply chains continued to recover and companies bought more inputs.

“The UAE PMI picked up in August and was consistent with a solid expansion in non-oil business conditions,” said David Owen, senior economist at S&P Global Market Intelligence, noting that it remained weaker than levels recorded earlier in the year as fewer companies reported an increase in activity.

“Businesses remain confident that output growth will be sustained over the coming year, especially as sales pipelines remain strong and firms have ample levels of outstanding work to complete. Capacity constraints are also easing, which should further aid business activity.”

The UAE economy's growth in 2023 was stronger than the most recent estimate, driven by non-oil sector growth.

The Arab world’s second-largest economy expanded by 3.6 per cent last year, compared to the 3.1 per cent estimated by the UAE Central Bank in the fourth quarter, the banking regulator said in June.

Non-oil gross domestic product expanded by 6.2 per cent during the period, it said.

However, it revised down its growth projections for 2024 to 3.9 per cent from the previous estimate of 4.2 per cent.

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Non-oil companies in the UAE last month benefitted from a stronger increase in new orders halfway through the third quarter, according to the S&P Global report.

Stronger domestic conditions spurred a rise in business and consumer spending, according to the survey of companies, while an improvement in international demand led to the sharpest increase in new export orders since October 2023.

Therefore, overall new business growth quickened to a five-month high. As a result, output levels grew sharply in August, with continuing projects also bolstering activity.

However, companies faced challenges in processing new work orders due to continuing supply chain issues, leading to a sharp rise in backlogs.

At the same time, an increase in hiring across the non-oil sector weakened in August and was the softest for seven months. While some firms added to their workforces to boost output, others made cuts to staffing levels.

In August, companies also registered the fastest pace of wage cost increases since May. This came amid a steep increase in average input costs, with businesses pointing to higher expenses related to raw materials, transport, IT equipment and maintenance.

However, a slowing of purchase price inflation meant that overall cost burdens were the softest in four months.

Selling prices set by non-oil companies rose further in August in response to cost pressures. The rise in charges was the fourth in consecutive months.

Looking ahead, projections for business activity strengthened in August after falling to a six-month low in July, with companies largely positive that economic conditions will improve.

Companies also expect that a strong sales pipelines would shore up output over the coming months.

In Dubai, operating conditions of the non-oil private sector improved at a stronger pace in August, according to PMI survey data. This was mainly due to a quicker increase in new business inflows, as the rate of demand growth picked up to a five-month high.

Employment levels in the emirate rose at a milder rate. Dubai-based non-oil businesses continued to face upwards pressure on their input costs in August. Prices rose sharply, albeit at the slowest pace since May. Average selling charges rose for the fourth month in a row and to the greatest extent since April 2021.