UAE business activity hits six-month high in August

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UAE business activity hits six-month high in August
Non-oil private sector employment in the UAE also increased, reflective of greater business requirements.

Dubai - Country's GDP growth in 2015 is expected to reach 3.9 per cent.

By Issac John

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Published: Fri 4 Sep 2015, 12:00 AM

Last updated: Sat 5 Sep 2015, 9:38 AM

Non-oil private sector business activity in the UAE accelerated in August to a six-month high, a corporate survey showed on Thursday.
Driven by sharper expansions in output and new orders, business conditions improved at the strongest rate in six months, according to the survey report sponsored by Emirates NBD and produced by Markit.  
"Marked growth of new work resulted in greater pressure on operating capacity; however, as backlogs of work rose at the quickest pace since the survey began in August 2009. On the price front, charges fell for the sixth time in seven months, contrasting with a further rise in input costs," it said.
The seasonally adjusted Emirates NBD UAE Purchasing Managers' Index, which covers manufacturing and services, rose to 57.1 points last month from 55.8 in July. A level above 50 indicates expansion. The composite indicator, designed to give an accurate overview of operating conditions in the non-oil private sector economy, climbed to a six-month high. The latest reading was indicative of a robust improvement in business conditions, and pointed to a further acceleration in growth from the 22-month low seen at the end of second quarter. "The sharp rise in the UAE PMI in August confirms our view that holy month of Ramadan likely contributed to the softer readings in June and July," said Khatija Haque, head of regional research at Emirates NBD. Ramadan, when some business traditionally slows, PMI fell in June and July this year.
Output growth surged to 63.1 points in August from 60.0 in July, while new orders rose to 61.3 from 60.2. Growth in new export orders, however, slowed sharply to 54.4 points.
"Encouragingly, new orders and output growth readings remain high, suggesting strong domestic demand. Slower growth in export orders last month may reflect the impact of currency appreciation relative to other emerging markets," Haque said. The UAE dirham is pegged to the US dollar, which has been strong.
Employment growth slowed slightly but remained positive. Output prices fell for the second month in a row, with the index at 49.2 points, but input price inflation was positive and picked up slightly.
Emirates NBD said in its report that the rise in the headline index was underpinned by sharper growth of two of its main components in August, namely output and new orders. "Activity rose at the fastest pace since February, while the rate of expansion in new business was a four-month high. Anecdotal evidence linked output growth to stronger client demand, which was in turn attributed to promotional activities and a general improvement in market conditions."
That said, data suggested that a slowdown in export growth weighed on total new work during August. Although solid, the rate of expansion eased to a two-year low.
Purchasing activity at UAE non-oil private sector firms rose further in August, extending the current sequence of growth which has run for more than five years. The pace of increase picked up to a seven-month high, similar to the trends seen for output and new work inflows. Subsequently, input stocks rose more quickly in August.
Non-oil private sector employment in the UAE also increased, reflective of greater business requirements. However, the rate of job creation was only moderate overall, and remained below the average registered in 2015 so far.
A further by-product of stronger order books was growth of outstanding business in August. In fact, the rate of backlog accumulation quickened to a survey-record high.
Meanwhile, average tariffs decreased for the sixth time in the past seven months during August. This was despite another solid rise in total input costs. According to panellists, greater competition was the main factor placing downward pressure on selling prices, although the rate of decline was only slight overall.
In contrast, the rate of cost inflation was at a seven-month high, helped by further rises in both salaries and purchasing costs. 
Diversification of the economy has allowed the UAE to grow strongly despite lower oil revenues. The UAE's gross domestic product (GDP) growth in 2015 is expected to reach 3.9 per cent thanks to more established diversification efforts, while many Middle East states will see lower growth caused by the plunging oil price, according to Economic Insight: Middle East Q3 2015, produced by Cebr for Institute of Chartered Accountants in England and Wales (ICAEW).

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