UAE Firms Report Increase in New Orders Even as June PMI Dips Slightly

In its June report, S&P Global notes that UAE businesses have shown significant growth in new orders – the fastest since March. The S&P’s Purchasing Managers Index (PMI) for UAE in June revealed a score of 54.6, slightly down from May’s 55.3, but still indicative of robust business activity within the UAE economy.

Understanding the findings from S&P Global

One of the standout observations from the report by S&P was the surge in new UAE orders, suggesting a healthy demand environment across various sectors. Alongside this, businesses also reported increased backlogs, partly influenced by external factors such as the Red Sea shipping crisis and the aftermath of April’s floods. However, there are optimistic signs of improvement as these backlogs are expected to ease in the coming months.

David Owen, Senior Economist at S&P Global, commented on these developments, noting, “The surge in backlogs is showing signs of easing, a trend that is likely to continue as the country recovers from April’s floods and supply chains adapt to the current situation in the Red Sea.” Further elaborating, Owen said that supplier lead times had improved “at the strongest rate for eight months”.

While new orders and backlogs paint a mixed picture, the report also highlighted some challenges. The growth rate in the UAE private sector moderated in June, leading to reduced hiring activity in certain sectors. Additionally, the cost of raw materials increased significantly, resulting in the quickest rise in average prices charged since April 2018.

Despite these challenges, key sectors such as retail and construction continue to show resilience. The retail sector has benefited from steady consumer demand, reflected in the opening of new stores and encouraging footfall numbers. Similarly, the construction industry has seen an uptick in new project awards, with significant developments like Azizi Developments’ ‘Venice’ project contributing to sector growth.

Looking ahead, there are indications that cost pressures might persist, potentially prompting businesses to pass on these increased costs to consumers. Owen highlighted this concern, stating, “Input price pressures are at their strongest for nearly two years, causing firms to raise their output prices for the second month in a row.”

Overall, while the UAE’s PMI for June signals a slightly slower pace of growth compared to previous months, businesses remain optimistic about future prospects. Strong customer demand, robust sales pipelines, and ongoing project activities in key non-oil sectors are expected to sustain economic momentum in the second half of 2024.

Ongoing hiring freeze versus expat inflow

Global economic and political events are being closely monitored by businesses in UAE, as they anticipate spillover impacts on their operations.

Many organizations have imposed hiring freezes, awaiting the outcomes of the UK general election in July and the US presidential election in November, while others are holding off until interest rates stabilize.

Compounded by high inflation worldwide, many business leaders are choosing caution, delaying critical decisions.

Nevertheless, an influx of foreign professionals into the UAE, particularly Dubai, has made skilled hiring easier. Businesses who are willing to hire fresh talent can take advantage of the talent pipeline as the UAE’s appeal as a place to work and live becomes more attractive. This has implications for firms seeking to hire at competitive costs as visas are tied into employment status; expats already based in the UAE would likely be on higher pay scales given the region’s growth trends.

Summary

The UAE economy continues to navigate through challenges, leveraging its strengths in various sectors to drive growth amidst global uncertainties and local challenges. As businesses adapt to evolving market conditions, the resilience and adaptability of UAE firms will play a crucial role in shaping economic outcomes in the months ahead.

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