According to the latest data issued by the S&P Global Purchasing Managers' Index study, companies in the UAE have faced great pressure on workloads, in light of reports of administrative delays and increased restrictions on supply due to the shipping crisis in the Red Sea.
As a result, the study data indicated the fastest duplicate buildup of the backlog in the study's nearly 15-year history (besides June 2018).
The purchasing managers index for the non-oil private sector in the UAE, issued by S&P Global on Wednesday, fell slightly in March to 56.9 points from 57.1 points in February. But the index remained well above the neutral level (50 points), indicating a strong improvement in operating conditions in non-oil producing sectors.
Meanwhile, business optimism rose to its highest levels in six months, and companies saw a smaller increase in their expenses. However, profit margins appeared to be getting worse, as increased competition contributed to the strongest decline in product prices in 3-1/2 years.
Strong demand remained a key feature of growth in the non-oil economy, with companies surveyed seeing another sharp rise in the volume of new orders.
The expansion rate rose from February's level, which was the lowest in six months, but remained slightly weaker than that recorded at the beginning of the year. Many companies that saw inflows recorded greater increases in customer spending and marketing campaigns. Export sales also increased, but modestly.
In contrast, non-oil producing companies raised their production levels to a significant degree.
In fact, approximately 31 percent of participating companies recorded growth in activity during the most recent study period.
In addition to the rise in new orders, companies cited ongoing projects and promotional activities as drivers of growth.
Despite increasing their production, companies often faced difficulties in completing new business. This led to the largest increase in backlog on record, alongside the increase that occurred in June 2018. According to the committee's comments, the high demand placed significant pressure on management teams, with many citing delays in payment and paperwork.
It was also reported that the interruption of the arrival of goods due to the shipping crisis in the Red Sea has affected the production capacity of companies. Delivery times were also affected, with companies reporting the weakest supplier performance in a year. However, overall delivery times continued to shrink.
The study also showed that the stock of production inputs grew at its slowest rate in two years in March.
This was generally related to a decline in warehousing efforts, as many companies reported having sufficient production supplies to meet new orders.
Likewise, purchase growth fell to its lowest level in seven months, but remained sharp. Non-oil companies saw only a modest increase in input costs in March, the weakest increase in 2024 so far.
This came as a result of the weak increase in purchasing prices. Meanwhile, selling prices fell by the most in three and a half years, which companies linked to increased competition and the need to retain customers.
Finally, the level of optimism towards future business activity rose to the second strongest level in four years (after September 2023).
Strong demand, high profits and marketing plans were often associated with positive expectations. At the same time, companies increased their headcount at a pace above the chain average for the second month in a row.
For his part, David Owen, Senior Economist at S&P Global Market Intelligence, said: “The overall picture for the non-oil private sector in the UAE remained rosy at the end of the first quarter, as the latest PMI reading of 56.9 points in March indicates an improvement.” “Business conditions are strong, with new order inflows and activity levels continuing to grow sharply.”
He continued: “However, full attention should be paid to the study’s backlog index, which recorded its highest repeat reading since the start of the study in 2009, as this reading was only recorded in June 2018. It is a key indicator of pressures on production capacity, and it has risen.” Since the beginning of the year, as companies increasingly report that supply issues and administrative issues are preventing them from fulfilling orders, the Red Sea shipping crisis has also been one of the factors reported, especially as it erodes the ability of suppliers to deliver goods on time.
He added: “While the increase in backlog is worrying as an indicator of the health of the business, the amount of pent-up demand should support activity growth for a longer period once these issues are resolved.”
It is noteworthy that the UAE seeks to increase the contribution of the non-oil private sector to the gross domestic product as part of its economic diversification plans.
The attacks of the Houthi group in Yemen on ships in the Red Sea, linked to the Israeli war on the Gaza Strip that has been ongoing for several months, disrupted the movement of ships and took alternative shipping routes via the Cape of Good Hope, which made the shipping period longer and its cost higher.
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