Non-oil business growth dips slightly in March amid shipping disruptions

Non-oil business activity continued to expand in March, albeit at a slower pace, as backlogs hit their highest level since June 2018, according to S&P Global’s purchasing manager’s index (pdf). The index dipped to 56.9 in March, down from 57.1 in February, remaining well above the 50.0 threshold that separates growth from contraction.

“The overall picture for the UAE non-oil private sector remained rosy at the end of the first quarter. The latest PMI reading of 56.9 in March signaled a robust upturn in business conditions, with order book inflows and activity levels still growing sharply,” said Senior Economist at S&P Global Market Intelligence David Owen.

New order volumes rose on the back of higher client spending and marketing campaigns. Consequently, output activity increased and hiring accelerated for the second consecutive month as firms raised staffing levels to cover the influx of new orders.

Backlogs accumulated at their fastest pace in 15 years as businesses struggled to complete their order books while grappling with surging client demand, which “placed great pressure on administration teams,” resulting in payment and paperwork delays.

Red Sea disruptions are to blame: Businesses’ delayed deliveries were compounded by the Red Sea shipping crisis which, “[eroded] suppliers’ ability to deliver items on time,” Owen explained, adding that “while the surge in backlogs is concerning as an indicator of business health, the pent-up demand should support activity growth for even longer once these issues are resolved.” Still, firms reported the weakest supplier performance in a year.

Business sentiment hit a six-month high and rose to its second-highest level in four years driven by the robust demand, high business incomes and marketing plans.

FROM THE REGION-

• Saudi’s non-oil business activity stood at 57.0 in March, down from 57.2 in the previous month, remaining in growth territory on the back of strong demand, according to its PMI (pdf).

• Egypt’s PMI (pdf) declined at a slower pace in March, rising slightly to 47.6 in March, up from 47.1 in February. This indicates a “softer but still-solid deterioration,” due to persistent currency challenges and pressure stemming from disruption in the Red Sea.