UAE private sector growth maintains momentum

January, 07th 2015

Dubai: The UAE’s Purchasing Manager’s Index (PMI) for December showed sustained improvement, despite sharp decline in crude oil prices in recent months.

The PMI data for last month showed that the non-oil private sector economy continued to indicate strong growth in business.

The PMI, compiled by HSBC and Markit Economics, is a composite indicator of UAE’s non-oil economy based on data compiled from purchasing executives in approximately 400 private sector companies in the country.

In December, production growth ticked up from the previous month to the second highest in the series to date, underpinned by a substantial increase in new orders. Subsequently, hiring continued to rise in December.

The PMI remained well above the neutral threshold in December, posting at 58.4 and little-changed from November’s reading (58.3), signalling a sustained improvement in business conditions in the UAE non-oil producing economy.

Continuing the trend observed since February 2010, non-oil private sector output in the UAE rose in December. Furthermore, the rate of expansion increased from the previous month to a sharp pace. The latest rise in output was supported by marked increases in new business from both domestic and international markets.

Growth of new export orders reached a four-month high in December. Anecdotal evidence attributed the latest rise in international demand to success in gaining new foreign clients and good market conditions.

Data also showed buying activity rose sharply in December, with the rate of expansion ticking up from the previous month. Stocks of pre-production goods remained in moderate growth territory, with optimism high among panellists.

“We expect lower oil prices to weigh on the economy into 2015, but for now demand is holding up well. That now orders as well as output have remained strong is particularly encouraging,” said Simon Williams, Chief Economist for Middle East & North Africa at HSBC.

In line with the expansions in production and incoming new orders, non-oil private sector firms in the UAE continued to hire staff in December. Despite growth slowing slightly from the previous month, the latest increase in payroll numbers was strong in the context of historical data.

Cost pressures continued to rise in private sector firms. Overall input price inflation rose in December, supported by a sharper increase in purchasing costs and modest wage growth. Output charges, meanwhile, stagnated in December, with the latest rate of inflation slowing from the previous month.

“Firms remain optimistic about prospects for future order growth, and increased purchases and stocks accordingly. The latest data continues to reflect strong fundamentals in the non-oil sectors of the economy, and so far there is little evidence in the PMI that lower oil prices are having a dampening effect on non-oil business activity in the UAE,” said Khatija Haque, Head of MENA Research of Emirates NBD.

Analysts say the UAE is best equipped to cope with potentially prolonged weakness in oil prices given its diversified economy and solid buffers, Barclays said in a report on Wednesday.

“We think the UAE stands out among its GCC peers as the best equipped to cope with potentially prolonged weakness in oil prices given its diversified economy and solid buffers,” said Alia Moubayed an analyst with Barclays

Among the GCC countries, the UAE stands out as the best equipped to face oil price headwinds and is the most capable of adapting to the structural changes in the global oil markets.

Ongoing official efforts to diversify the UAE’s economic structure and encourage the expansion of the non-hydrocarbon sectors have seen the share of the non-hydrocarbon sector increase from 44.7 per cent of GDP in 2000 to 61.1 per cent of GDP in 2013.

The reduced reliance on oil revenues is reflected in the increasing share of non-hydrocarbon in the UAE’s exports and fiscal revenues. This is partly explained by the growing share of investment income earned on net foreign assets, as well as the rapid expansion in non-oil exports of goods and services (notably from Dubai).

Source: Gulfnews.com