UAE economic recovery picks up pace in March, hits 20-month high – PMI

UAE non-oil business activity grew at the quickest rate since July 2019 in March, helped by a renewed increase in new business inflows and a sharp pick-up in the construction sector, a new report shows.

The seasonally adjusted IHS Markit UAE Purchasing Managers’ Index (PMI) rose by two points from 50.6 in February to 52.6 in March, indicating a solid upturn in business conditions in the Arab world’s second-largest economy.

A PMI above 50 represents an expansion when compared with the previous month.

The March reading also extended the current run of expansion to four months, the longest seen since the end of 2019.

The large-scale Covid-19 vaccine roll-out in the UAE seems to have boosted business confidence and spending. Hopes that Covid-19 restrictions will be eased in the coming months contributed to a further improvement in business expectations.

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Efforts to restart construction work was also a key factor to growth, with respondents in this sector noting a resumption of old projects and a rise in new work.

“The PMI has now been above the 50.0 no-change marks in each of the latest four months, signalling increased momentum in the economy’s recovery,” said David Owen, an economist at IHS Markit.

“Likewise, business confidence improved to an eight-month high, with vaccine optimism driving confidence in future activity,” he added.

On the flip side, businesses were still hesitant concerning input buying decisions in March. The rate of purchasing activity growth slowed to a four-month low, with many panellists citing that high stock levels and supply shortages led them to cut their purchases. Delivery times on raw materials and key components lengthened for a second straight month, due in part to growing pressure on global supply chains and input availability, the survey added.

Some companies looked to offset rising cost pressures through staff reductions in March, resulting in a slight drop in employment across the non-oil sector.

Owen highlighted growing concern surrounding supply-side factors, with global delivery delays having built up during the first quarter of the year. “UAE businesses are now starting to see the effects, as input price inflation ticked higher amid rising raw material prices and shipping fees,” he said.

“Firms struggling to contain costs may find this acting as a resistance to future output growth as Covid-19 restrictions continue to unwind and new orders start to improve,” Owen added.