'Modest' improvement in business conditions in UAE's non-oil sector in August

Headline PMI number drops to lowest in eight years but optimism remains strong with firms expecting a boost to demand

Business conditions in Dubai's non-oil private sector economy improved in September. Leslie Pableo / The National

Business conditions in the UAE’s non-oil private sector economy improved at only a modest rate in August as activity and demand growth softened, amid a weakening global economic backdrop. However, optimism for a pickup remained strong on the back of Expo 2020-related activity.

The headline seasonally-adjusted IHS Markit UAE Purchasing Managers’ Index — a composite indicator of operating conditions in the non-oil economy — fell to 51.6 in August, from 55.1 in July, its lowest reading for eight years.

The data pointed to a slight improvement in business conditions but is the third successive month in which growth has slowed amid tough competitive pressures. Activity in the non-oil economy also increased at a softer rate compared to July, on the back of weaker demand.

New orders received by UAE firms increased at a solid, but relatively subdued, pace in August. Although demand for new orders from customers was strong, strong competitive conditions held back growth, according to the panellists polled for the survey.

"The dip in activity growth dampened business sentiment in August, although the underlying forecast was still strong. With the Expo 2020 coming, many businesses were positive that the market will see strong levels of activity in the coming year," David Owen, an economist at IHS Markit, said.

Hiring activity also eased over August, with latest data showing a broadly unchanged labour force in the non-oil sector of the UAE, the second-biggest GCC economy. This ended a five-month sequence of increases in employment, Mr Owen noted.

Elevated competition in the market also forced companies to lower selling prices again in August, however, the rate of reduction was only modest, according to the survey.

On the other hand, firms were again helped by a lack of cost pressures, with panellists reporting unchanged overall input prices.

Looking ahead, the dampening rate of new business growth in August led firms to project a weakened outlook for activity. However, the level of optimism remained strong by historic standards, with firms expecting a boost to demand next year, in particular due to the Expo 2020 and improving market conditions.