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Non-oil private sector growth robust in Sept

Emirates NBD PMI for UAE falls but still remains strong at 56.

Dubai: Non-oil private sector growth in the UAE remained robust in September driven by higher output and new orders. The overall growth, although in slower pace amid steep drop in oil prices, was supported by further rises in employment and input stocks, according to data from the seasonally adjusted Emirates NBD UAE purchasing managers' index, which covers the non-oil economy.
The rate of hiring eased to a six-month low at the end of third quarter, while growth of total new work was undermined by the first drop in foreign orders since May 2010. On the price front, a sharper rate of cost inflation was reflected in a renewed increase in output charges.
Emirates NBD PMI fell to 56 in September, down from the six-month high figure in August of 57.1, but still indicative of a solid improvement in business conditions. Growth has been relatively strong throughout the third quarter, with the respective average (56.3) coming in only just below the trend observed so far in 2015 (56.7).
Any score above 50 indicates that the economy is expanding.
The survey, sponsored by Emirates NBD and produced by Markit, contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.
Khatija Haque, head of Mena Research at Emirates NBD, said the strength of total new order growth is particularly encouraging, given the remarkable weakness in export orders last month. "In our view underlines the strength of domestic demand in the UAE even against a backdrop of low oil prices."
According to the key findings, noticeable expansions in output and new orders underpinned improvement in business conditions in September while new export work fell for first time since May 2010 and jobs growth eased to six-month low. "Underlying data suggested that sharp rises in both output and new orders contributed to the strong performance of the sector as a whole. Despite easing slightly since August, the respective rates of expansion remained above their historical averages. Enhanced marketing strategies and reputations for quality were cited as factors behind growth of new business, which subsequently led to a rise in production during the month," the report said. The PMI report said expansion in total new orders was restricted by a fall in new export work during September. "The latest decline was only slight, but it was the first seen in nearly five-and-a-half years. Some companies attributed weaker new business from abroad to greater competition." Input buying rose for the sixty-second month in succession during September. The rate of growth eased to the slowest in three months, but remained faster than the long-run trend. Subsequently, pre-production inventories also increased, said the report.
Non-oil private sector firms reported ongoing cost pressures in September, as total input prices rose for the sixth straight month. The rate of inflation was the steepest in almost a year, driven by higher salaries and purchasing costs.
The Minister of Economy Sultan bin Saeed Al Mansouri affirmed that the UAE economy is on target to grow more than 3.5 per cent to exceed Dh1.6 trillion in 2015 on the back of a vibrant non-oil sector.
Despite the plunge in oil prices, the Arab world's second-largest economy is able to maintain such steadfast growth rate because of its successful diversification policy that is increasingly reliant on non-oil sectors to propel expansion. Al Mansouri's forecast is in line with International Monetary Fund's forecast that the UAE's growth is expected to moderate amid lower oil prices. The IMF said the country's non-oil growth would slow down to 3.4 per cent in 2015 and would pick up steam from 2016 and post a 4.6 per cent growth by 2020.
Al Mansouri said he expects the size of industrial investments in the UAE would double in five years in tandem with the growth of the industrial sector share in the country's GDP, which now stands between 10-14 per cent.
issacjohn@khaleejtimes.com