Strong demand, new products boost UAE business confidence

Thriving non-oil private sector coasts over impact of declining crude prices

February 3, 2015

The UAE’s Purchasing Manager’s Index (PMI) for January showed strong improvement in business, indicating that the non-oil private sector continued to grow despite sharp decline in oil prices.

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

The headline PMI for January was 59.1, up from 58.4, the highest in three months.

“The pick up in activity at the start of the year is encouraging, but we continue to expect activity to lose speed into 2015 as low oil prices and weaker demand from key export markets in the Gulf weigh on momentum,” said Simon Williams, Chief Economist for Middle East & North Africa at HSBC.

January data signalled a sharp increase in production in the UAE’s non-oil private sector economy. Stronger demand conditions, the launch of new products and a rise in new work were commonly reported as the main drivers of the latest increase. Subsequently, payroll numbers increased, with the rate of growth little-changed from the previous month. Meanwhile, input prices rose at a solid pace, while selling prices rose only fractionally.

Supporting overall sector growth was a strengthening in the rate of output expansion. Almost 37 per cent of panellists reported higher production in comparison to the previous month. New orders rose in January, continuing the trend observed since the survey began in August 2009.

Overall growth was also driven by further rises in new orders from both the domestic and international markets. Capacity remained under pressure over the survey period, with backlogs of work rising for the ninth successive month.

Responding to ongoing growth in new orders, firms hired additional staff over the month, continuing the trend observed since January 2012. Companies commented on higher production requirements and the launch of new products leading to the latest rise in employment.

“The latest PMI data underlines the resilience of the UAE’s non-oil sector in the face of significantly lower oil prices. We maintain our view that non-oil sector growth will remain robust this year, underpinning overall GDP growth of 4.3 per cent in the UAE and 4.7 per cent in Dubai,” said Khatija Haque, Head of MENA Research at Emirates NBD.

As part of efforts to sustain strong production growth, non-oil private sector firms continued to expand their purchasing activity in January. On the price front, overall input costs continued to rise. A solid increase in purchasing costs was recorded, which panellists attributed to stronger demand driving up raw material prices. Meanwhile, wages and salaries rose modestly.