Local Business

Business expands in Q2 as investor confidence grows

Filed on July 3, 2019

(File photo)

The non-oil private sector growth continued to pick up momentum in the second quarter with investor confidence and business outlook brightening on the back of a host of liberal reforms and pro-investor regulations initiated by the government in the run up to a widely anticipated Expo-driven boom.

Tuesday's release of June data from the Emirates NBD Purchasing Managers' Index for the UAE underscores this optimism by indicating strong expansion in new orders and business activity.

The Emirates NBD survey, compiled by IHS Markit, shows that new orders continued to rise sharply in June, indicating that the economy continuing to gain momentum.

Khatija Haque, head of Mena Research at Emirates NBD, said the recent PMI surveys indicated that growth in the UAE's private sector has accelerated in second quarter 2019.

The average PMI reading for the second quarter was the highest since fourth quarter 2014.

"While firms have reported growth in output and new orders, this has come on the back of further price discounting. As a result, there has been no real boost to hiring as businesses remain focused on keeping costs down," said Haque.

While there was strong expansion in new orders amid price discounting, employment levels broadly remained unchanged, said the survey report.

The index posted 57.7 in June, down from 59.4 in May but still signalling a marked monthly improvement in business conditions in the UAE's non-oil private sector.

"Purchasing activity grew at a record pace for the second month running as companies responded to rising new orders. Stocks of purchases also increased, albeit at a reduced pace that was the softest since February," said the report. However, in spite of improving demand for inputs, suppliers' delivery times continued to shorten markedly. Panellists indicated that vendors had speeded up deliveries in line with requests, said the report.

"Companies were able to offer discounts thanks to a lack of cost inflationary pressure. Overall input prices rose only marginally in June. Purchase costs increased slightly, while wages and salaries were broadly unchanged," said the report.

Non-oil companies remained strongly optimistic that business activity will increase over the coming year, although sentiment eased again from April's record high. Expectations of further new order growth was a key factor behind optimism, while next year's 'Expo 2020' was also widely mentioned, it said.

Moody's Investors Service observed that the UAE economy is expected to pick up growth momentum by 2020, driven by higher public spending in Abu Dhabi and the emirate's strong credit profile on the back of the country's stable sovereign rating and economic diversification measures.

The central bank said the UAE's gross domestic product grew an annual 2.2 per cent from a year earlier in the first three months of this year as the non-oil sector continued to gain momentum on the back of government spending.

The International Monetary Fund has said the UAE economy is all set to strengthen with Abu Dhabi infusing Dh50 billion through stimulus measures.

The federal and local governments have rolled out stimulus packages in line with UAE Vision 2021. The federal government relaxed foreign ownership requirements and introduced 10-year visas to stimulate the private sector and promote long-term residency. On Tuesday, the government announced 122 sectors that will allow foreign investors to own 100 per cent.

Some 82 per cent of UAE companies expect to grow over the next two years, according to a research by HSBC. "The boost in business confidence makes the UAE one of the world's most optimistic markets for growth globally, behind only Indonesia, India, China, and Mexico, according to a new HSBC study of over 2,500 companies in 14 countries and territories. - issacjohn@khaleejtimes.com


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