UAE’s private sector sees strong growth, but profits margins stay slim

Positive sentiment in the non-oil private sector reached its highest in at least six years

The UAE’s non-oil private sector improved at the fastest rate in four months in May, although profit margins remain under pressure, according to the latest monthly survey by Emirates NBD.

The seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index (PMI) rose to 56.5 in May, from 55.1 in April. The figure was indicative of a sharp improvement in business conditions and was above the long-run average, the report said.

Growth was boosted by a sharp expansion in output, with companies seeing a strong level of demand from both domestic and external sources.

In line with increased client demand, new project wins and developments surrounding Expo 2020, positive sentiment in the non-oil private sector reached its highest in at least six years, the report added.

Firms also hired additional staff at the fastest pace in four months to keep pace with rising output demand.

However, the rate of growth in employment was only slight overall and below the long-run average. Some firms also reported falling employment levels, linked to cost optimisation.

On the price front, firms reported a reduced level of input cost inflation in May. Softer staff cost and purchase price inflation only led to a “modest increase” in operating costs.

Firms also reported the highest degree of confidence towards the year ahead since the PMI began in early-2012.

Khatija Haque, head of MENA Research at Emirates NBD, said: “The strong PMI reading in May was partly due to a rebound in export orders – reflecting improved external demand conditions – as well as significant price discounting domestically.

“As a result, while the headline index shows strength in activity, profit margins remain under pressure.”

Last week, the UAE’s central bank revealed that non-oil economic activity in the country grew by 3.1 per cent year-on-year in the first quarter of 2018.

The central bank also raised its forecast for gross domestic product growth in 2018 to 2.7 per cent from its previous forecast of 2.5 per cent.

More specifically, the bank improved its prediction for the UAE’s non-oil GDP growth to 3.9 per cent from 3.6 per cent, citing better prospects for the global economy.

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