UAE Economic Update

UAE Economic Update

Improving economic conditions resulted in further gains in output and new orders at UAE non-oil companies at the start of 2018, according to the latest UAE PMI survey.

It added, “Employment was raised at the strongest pace for a year on the back of increased workloads. The introduction of VAT in January added to companies’ input costs, which rose at the fastest pace in 74 months. Anecdotal evidence suggested that stock-building in advance of VAT coming into force was responsible for a marked slowdown in the rates of expansion in both purchasing activity and stocks of inputs.”

The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.

Commenting on the UAE PMI survey, Khatija Haque, Head of MENA Research at Emirates NBD, said, “The January survey indicates that non-oil sector growth got off to a strong start in 2018, notwithstanding the slight decline in the headline index. The impact of VAT is evident in the sharp rise in input costs last month. While selling prices also increased in January, the survey suggests that the full rise in input costs was not passed on to consumers.”

The headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index (PMI) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – posted 56.8 in January, down from 57.7 in December but still signalling a marked monthly improvement in business conditions.

Companies saw another sharp increase in new orders during January, linked to stronger economic conditions, competitive pricing and the securing of new clients. New export orders also rose, the second month running in which that has been the case.

Higher new orders contributed to a sharp and accelerated rise in business activity. Despite the faster rise in output, backlogs of work continued to accumulate.

Non-oil private sector firms increased their employment in line with higher workloads at the start of the year. Although modest, the rate of job creation was the fastest since January 2017.

The introduction of VAT impacted on pricing and purchasing during January. Overall input costs rose at a much faster pace than in December, with companies often linking higher purchase prices to the impact of the new VAT. Purchase costs increased at the sharpest rate since November 2011, while wages and salaries also rose at a faster pace.

Output charges increased for the first time in five months, with panellists suggesting that this was due to the inclusion of VAT in selling prices.

Rates of expansion in both input buying and stocks of purchases were much slower at the start of the year. Respondents indicated that stock-building in advance of the VAT introduction meant that inventories were sufficient to deal with current workloads.

Suppliers’ delivery times continued to shorten amid prompt payments and good relationships with vendors.

Finally, there was a marked improvement in business confidence in January. Sentiment was the strongest since June 2015. Panellists predicted that activity will increase once the new VAT system becomes more familiar, with higher new orders also expected to support output growth.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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