UAE non-oil business activity at highest level since 2022 began amid growing demand

May PMI reading signals one of the strongest improvements in health of non-oil economy in the past three years

The UAE economy continues to make a strong recovery from the coronavirus-induced slowdown. AFP

Business activity in the UAE's non-oil private sector economy recorded its highest reading for the year in May as output and new orders surged amid rising client demand.

The headline reading for the seasonally adjusted S&P Global UAE Purchasing Managers' Index — a composite indicator designed to give an accurate overview of operating conditions in the non-oil private economy — rose to 55.6 in May, from 54.6 in April, signalling one of the strongest improvements in the health of the non-oil economy in the past three years.

A reading above the neutral level of 50 indicates growth while one below it points to a contraction.

“The UAE PMI remained well inside growth territory in May, rising to its highest level for five months and indicating that the economy continues to recover strongly from the pandemic,” said S&P Global Market Intelligence economist David Owen.

“Despite the end of the Expo 2020, firms continued to cite rising order book volumes and increased tourism, although this was partly helped by a renewed decline in average prices charged.”

The Arab world’s second-largest economy, has made a strong rebound from the coronavirus-induced slowdown as tourism and travel recovered with the easing of Covid-19 restrictions globally and an oil rally that has driven up prices by 70 per cent since last year.

The UAE's gross domestic product is expected to grow 5.7 per cent in 2022, up from 3.8 per cent in 2021, helped by an increase in oil production, according to Emirates NBD.

Japan's largest lender MUFG projects growth of 4.9 per cent this year while Abu Dhabi Commercial Bank has forecast an expansion of 5.4 per cent.

During the first quarter of 2022, the growth of the UAE's tourism sector outpaced rates recorded in 2019, before the onset of the pandemic, making it one of the best quarters for the industry, the UAE's Ministry of Economy said last month.

Businesses reported a sharper increase in new work on the back of higher demand from clients, the PMI survey showed. Increased marketing and discounts on products gave sales a boost. The rate of job creation was the quickest recorded in seven months.

Average input costs for businesses increased as a surge in energy prices and supply shortages — due to Russia's war in Ukraine — affected raw material prices, according to the latest data. The rate of input price inflation was the sharpest recorded in three-and-half years.

However, businesses absorbed extra costs and offered lower prices to their customers to boost sales, the results show.

“Following the global trend, the main headwind to the non-oil sector in May was inflation. Input costs rose at the quickest rate since November 2018 as companies widely noted higher fuel prices, as well as increased costs for a wide range of materials such as aluminium, steel, wood and chemicals,” Mr Owen said.

Despite the rise in inflation globally, UAE non-oil businesses expect output to increase in the next 12 months amid strengthening demand and higher sales. The degree of confidence among UAE businesses on output increase picked up slightly from April, the survey results show.

The S&P Global UAE PMI is compiled based on responses to questionnaires sent to purchasing managers of around 1000 private sector companies operating in the country. The sectors covered by the survey include manufacturing, construction, wholesale, retail and services.