UAE’s New Business Growth Surges to 3-Month High

June brought good news for businesses in the UAE. New work orders increased at the fastest pace in the past three months. Let’s look closer at the factors driving this rise in new business. We’ll also see what it means for the country’s economic recovery.

Demand Strengthens on Multiple Fronts

Companies reported higher demand from customers within the UAE as a key reason for the jump in new project wins during June. Many firms noted that more people were spending on various goods and services compared to prior months. At the same time, export orders also grew substantially. The volume increase for exports was the strongest since October 2022 according to available data. Both domestic consumption as well as foreign demand supplemented the growth in new business activity. As demand is a major determinant of output, the revived customer spending bodes well for continued economic expansion.

New Client Acquisition Adds to Order Volumes

In addition to rising existing customer demand, companies were successful in securing new clients during the month which contributed additional orders. Attracting new customers expands the target market and diversifies business risks. The acquisition of new accounts helped offset capacity constraints as backlogs mounted, serving to maximize potential output gains from strengthening demand conditions. By broadening their clientele, firms positioned themselves for sustainable revenue growth going forward as activity normalizes from the pandemic recovery phase.

Backlogs Accumulate But Supply Pressures Ease

Thanks to the influx of work orders, the amount of unfinished orders or work-in-hand kept accumulating sharply through June reflecting solid production schedules. However, the rate of backlog growth did slow slightly. This is because supply chain disruptions from recent challenges like floods were impacting inventories and inbound deliveries less severely. In fact, raw material supplies to businesses rebounded significantly during the month helping resolve capacity issues to some extent. While the backlog level stays elevated, easing supply pressures prevented further steep increases.

Economic Activity Still Expands But at a More Measured Pace

The latest PMI data pointed to ongoing normalization in the speed of expansion as anticipated, with the index dipping marginally but remaining above 50 in expansion territory. Sustained new order wins have enabled continued output growth, but at a slower pace given high base effects from the exceptionally strong start to 2023. Some competitive pressures in certain sectors also likely weighed on production to a degree alongside nascent signs of moderating demand pressures. Overall growth is stabilizing after the post-pandemic surge rather than showing signs of stalling.

Cost Escalation Emerges as Key Challenge

Businesses faced substantial inflation in the prices of raw materials, logistics and other operational expenses – pushing overall input cost inflation to a near 2-year high. As a result, firms hiked their selling prices at the sharpest rate since early 2018 to safeguard margins being eroded. High inflation could dent both company and household spending power if left unaddressed for too long. However, stable demand conditions thus far indicate pricing dynamics are being managed. Strong fundamentals and policy support also lessen volatility risks.

Outlook Remains Optimistic Despite Short-Term Slowing

To conclude, the spike in new orders seen in June confirms ongoing economic revival, led by robust trade and consumption. Full order books signal resilience, and medium-term prospects are bright given vibrant market conditions. Yet inflationary pressures call for careful monitoring. Should monetary and supply-side measures preserve macro stability while stimulating activity, continued growth appears well within reach over the coming quarters.

Conclusion

To summarize, the jump in new business seen last month bodes well for continued recovery, driven by reviving customer and export demand. However, inflation will be a key variable to monitor as rising costs could squeeze corporate margins and household spending power if not addressed. The outlook remains positive backed by new work, even as growth eases from its initial blistering pace on base effects. Policy actions to support business competitiveness amid high inflation will play an important role going forward.

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