Business conditions in the United Arab Emirates' non-oil private sector continued to demonstrate stability in February, bolstered by a modest rise in selling prices that pierced through competition, thereby catalyzing a marked expansion in both new business and output, as reported by S&P Global on Wednesday. The S&P Global UAE PMI remained steady at 55 for the second consecutive month, surpassing its long-run average of 54.4.
This report highlighted the significant enhancement in the health of the non-oil economy attributed to improving market conditions and innovative advertising efforts that have successfully increased order book volumes. In response to the growing demand, firms elevated their input inventories to the highest level observed in just over a year.
However, only a portion of these firms opted to enlarge their workforce, leading to notable capacity and labor constraints. To complicate matters, delays in payment processes resulted in a significant uptick in work backlogs, slightly edging below January's eight-month high. Despite prevailing positive business morale, which showed a slight improvement from January's recent low, companies have increasingly acknowledged international competition and limited capacity as top concerns for future growth.
Alarmingly, just 10% of surveyed firms expressed expectations to ramp up their activities within the upcoming 12 months, a figure strikingly lower than long-term norms. The combination of intense competition and a temperate level of confidence made enterprises wary of initiating price hikes, even amidst rising material costs and charges associated with maintenance, technology, and staffing, which led to the first uptick in input cost inflation since July 2024.
The slight rise in selling rates from non-oil companies remains the most pronounced since September 2024. "While the robust growth in business activity suggests that the backlog of orders should eventually be resolved, other factors such as sluggish job creation and administrative delays present risks to this positive outlook," stated S&P Global's senior economist, David Owen.
"Additionally, firms still report ongoing challenges in securing payments from clients. This issue seems to be deeply rooted in the broader market, potentially necessitating policy interventions to address it." In Dubai, the Emirates' largest city, the PMI dipped to a three-month low of 54.3 in February, down from 55.3 in January.
Although sentiment levels rebounded to a three-month high, they remained relatively subdued, prompting many firms to maintain their existing staffing levels..