The latest Purchasing Managers’ Index data has shown that the UAE economy has been showing signs of recovery from the earlier phases of a slowdown in May as the nation rose from its most stringent lockdown measures over the last few months.
IHS Markit’s PMI data for May revealed that production fell to a lesser degree than April’s unprecedented velocity. Organizations were however restricted by a weak market environment and lower employment. Easing travel & transportation has led to a reduction of supply chain pressures, while input costs rose for the first time since February.
The marquee seasonally altered PMI, a composite pointer of working conditions in the non-oil private sector economy had grown from a record low of 44.1 in April to 46.7 in May.
“The change in curfew hours in May helped to lighten the impact on the UAE economy, PMI data suggests, with the headline index rising to 46.7 from a record low of 44.1 in April.”
– David Owen, Economist – IHS Markit
Difficulties with lower demand numbers
Despite approaching the highest in three months, the newest numbers showed a drop in business conditions. However, as numerous companies were able to reopen and improve output due to moderate curfew measures, the rate of drop shifted back from April’s record. Nevertheless, many businesses pointed out that consumer demand persists as indicated by lower ‘new order’ volumes. Export also dipped for the fourth month running, mainly associated with ongoing lockdown measures in GCC countries and other markets.
Data illustrated that UAE business units continued to decrease employment numbers in May, although the latest reduction was the lowest since February. Concerns stated that surplus capacity prevailed and growing cost burdens led them to make further modifications to salaries. As a result, staffing expenses declined solidly and at the fastest pace in the survey’s history.
Recover to logistic and supply chains
More positively, the partial lifting of travel constraints enabled suppliers to make larger numbers of shipments in May. Lead times remained to grow, but only marginally. Firms meanwhile looked to stock inputs with an expectation of an additional relaxation of lockdown limitations in the UAE and elsewhere.
“Lockdown measures worldwide have notably reduced exports, as well as limiting input supply. However, May data suggested that these impacts are lessening as some countries move to lighter measures,” stated Owen.
Input costs grew for the first time in three months during May, attached to increasing raw material prices and a reported increase in shipment charges. Output prices meanwhile declined for the twentieth straight month, though only lightly as some firms transferred on higher costs to customers.
While output and new orders declined at lower rates, firms noted increasing concerns that the pandemic will have a long-term impression on demand.