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DUBAI: UAE businesses took a more cautious stance in November as concerns about the direction of the global economy into 2023 weighed on decision-making. According to S&P Global’s latest PMI (Purchasing Managers Index), new orders have slowed slightly, which is reflected in the pace at which new jobs are being created in the UAE’s private sector.
This suggests the UAE economy is stabilizing following a post-pandemic surge in business activity.
But businesses will be encouraged by operating costs remaining relatively stable amid inflationary pressures. This is brought about by lower fuel costs and translates into reduced logistics and supply chain spend.
“The UAE PMI fell from a post-pandemic high to a 10-month low in November, pointing to slower growth across the non-oil economy,” said David Owen, economist at S&P Global Market Intelligence. “Confidence in future output fell to its second lowest level in 15 months, leading businesses to pull back hiring growth from recent highs.”
PMI readings
The UAE’s November PMI score was 54.4, down from 56.6 in October and the lowest since the beginning of the year.
PMI has a broad understanding of the operating conditions of enterprises based on orders, capacity usage, recruitment, etc. Scores below 50 indicate that private sector activity is shrinking.
“The overall figure of 54.4 (for November) shows that UAE businesses are still enjoying strong growth, a feat that is becoming increasingly difficult to achieve in the global economy,” Owen said. “Aside from this, UAE firms saw little pressure on input costs, which rose at the weakest pace in three months, and only marginally.”
Will the cost of inflation fall further?
Based on business feedback, transport and logistics costs have been falling in recent weeks, with the added benefit of not having to pay less for fuel than earlier this year and during the summer. (Global oil prices have been soft this week, also as markets ponder what’s next for the global economy.) Production rose in November. The output of UAE businesses expanded due to increased demand, with “some companies mentioning continued growth in ongoing projects”. On the downside, the pace of expansion slowed to the slowest pace since January last year.
what happens when you recruit
Companies’ workforces increased only slightly in November after a strong hiring spree in September and October. Even so, “the growth in employment levels (November) was one of the fastest in the past five years, helping to ease pressure on capacity to some extent,” the S&P Global report added.
Feedback from the market suggests that hiring may increase in December, especially for short-term contracts at the end of November and early this month, as the UAE prepares for year-end events. In addition, the FIFA World Cup in Doha has also brought benefits to the UAE economy, especially in the retail, tourism, hotel and service industries.
ease inflationary pressure
The biggest positive for UAE businesses since November has been lower inflation costs.
S&P Global said “price adjustments for some raw materials have helped moderate material price pressures.” Total input costs rose only slightly, continuing a trend of benign inflation since September.
“On the other hand, prices charged by UAE companies have stabilized after falling in each of the previous six months, as fewer companies reportedly offer discounts to customers.”
Companies will try to capitalize on these factors to make up for the “slowest sales growth since September 2021” in November.
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