The headline PMI slipped to 54.8 from 55.3 in September, according to the survey released on Wednesday. The reading nevertheless indicated solid growth in non-oil business conditions, as any figure above 50 signals expansion.

Businesses said they had raised prices in response to escalating costs and to protect profit margins. Selling-price inflation was the strongest since the survey began in August 2009.

Input costs also rose at their quickest pace since June 2022, largely because companies paid more for purchases. Respondents reported higher prices for raw materials as well as fuel, energy, freight, maintenance, storage and rent.

David Owen, principal economist at S&P Global Market Intelligence, said the results suggested inflation risks for the UAE economy had increased during the fourth quarter.

“The unprecedented rise reflected efforts to pass cost burdens on to customers, with firms feeling the impact of higher fuel prices and increased charges for critical materials,” Owen said. He added that successive increases in petrol and diesel prices had intensified those risks.

Orders rise while staffing declines

New orders grew faster than they had in September, supported by new customers and repeat business. Companies also pointed to an improvement in foreign demand, with export orders rising at the fastest pace in exactly two years.

Output continued to expand strongly at the beginning of the fourth quarter, although the rate was marginally below September’s seven-month high. Construction, retail, tourism and manufacturing were cited as areas supporting activity. Some respondents, however, reported constraints linked to regional conflict, competition and lower discretionary spending.

Despite higher sales, employment declined slightly in October, marking the third reduction in staffing levels in five months. Some businesses said they had cut headcounts to manage costs, while hiring elsewhere was intended to meet rising demand.

Backlogs of work rose sharply again because incoming orders outstripped firms’ capacity to complete existing projects. However, the build-up in outstanding work was the slowest in three months.

“There was also evidence that firms were reluctant to take on staff while costs are high. This all suggests that businesses are focused on protecting their margins whilst sales recover,” Owen said.

Optimism reaches highest level since January

Expectations for activity over the next 12 months improved to their strongest level since January. Firms linked the more positive outlook mainly to forecasts of sustained demand and hopes for better regional conditions, particularly for tourism-related businesses.

Purchasing activity increased at the fastest rate in nine months as companies sought to meet stronger demand. Inventories of inputs rose only slightly, and at the weakest pace since July, because many purchased items were quickly used to fulfil sales.

Supplier performance improved to the greatest extent since June. Survey respondents cited adequate local supply and responsive vendors. The survey said this continued a trend of domestic non-oil businesses turning to local suppliers to limit the impact of disrupted maritime routes.

“Alongside the sharpest rise in purchasing activity for nine months, this should help businesses keep pace with growing order books heading into the end of the year,” Owen said.

Dubai companies report stronger conditions

Dubai’s PMI rose from 54.5 in September to 54.6 in October, its highest reading in eight months, indicating a strong improvement in conditions among the emirate’s non-oil companies.

New business in Dubai increased sharply, matching the fastest pace since February. Companies expanded output while making only modest staffing reductions.

Dubai firms, like businesses across the UAE, reported a record rise in selling prices as they passed higher input costs on to customers. Overall cost pressures accelerated to their fastest rate since June 2022.

Companies in Dubai were more optimistic about future activity, although cost concerns meant they were less inclined to build inventories than in September.

Source: Khaleej Times