RIYADH: Rising oil prices and inflationary pressures have taken a toll on the UAE’s non-oil economy, with businesses witnessing their input costs increasing at the fastest pace for 11 years at the halfway point of 2022, according to S&P Global.
"UAE businesses came under increased pressure from rising input costs in June, as a surge in fuel prices drove the fastest rate of cost inflation in exactly 11 years,” said David Owen, an economist at S&P Global Market Intelligence.
He said more than twice as many surveyed firms indicated a rise in their expenses compared to May, leading many to curb spending on inputs.
As businesses are grappling with rising operating and manpower expenses, this forced them to cut their purchases and stockpile, however, companies continued to see a robust increase in new orders in June.
Although the UAE Purchasing Managers' Index— which is an indicator of operations in the non-oil private sector— is well beyond the crucial 50.0 mark, it has witnessed a decrease from 55.6 in May to 54.8 in June.
Nevertheless, the non-oil sector has been growing since the easing of COVID-19 restrictions over the past 19 months.
To combat inflationary pressures and consumer speculation, firms have kept their prices at a two-month low in June, while burdening themselves with the rising input prices.
Owen said the latest data suggested that firms were unwilling to pass higher costs on to customers in June, “as output charges were reduced at the fastest rate in over a year-and-a-half.”
Additionally, firms have integrated discounts to maintain their competitive edge.
And after a six-month high in the rate of sales growth in May, high inflation and interest rates pushed down order volumes in June to their slowest pace since January.
Moreover, increased economic activity in the second quarter required firms to expand their staff capacity at higher wages, as average wages increased at the fastest pace for over four years.
This increase in input prices is a direct effect of higher fuel prices, S&P Global reported.
Despite the decrease in purchasing activity in June, it said firms and consumers convey a positive outlook on the future activity as the world continues to recover from the pandemic’s recession.
"While firms remained positive about future activity, the survey data suggested that they are unlikely to maintain cost margins at the current level," added Owen.
