UAE non-oil sector growth gains steam

Emirates NBD UAE Purchasing Managers' Index rose from May's six-month low of 54.3 to 55.8 in June.

The growth trajectory of the UAE non-oil private sector gained steam in June following May's weakest improvement in six months, a leading bank said in its monthly survey of business condition.
Emirates NBD, the largest Dubai-based bank, said the latest improvement was supported by sharper rises in both new orders and output.
Emirates NBD UAE Purchasing Managers' Index (PMI) - a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy - rose from May's six-month low of 54.3 to 55.8 in June.
Growth in new orders quickened from May's five-month low to the fastest pace since August 2015. Firms linked the rise in new business to discounts and greater marketing efforts, said the bank's PMI survey report produced by IHS Markit.
However, the rate of job creation eased to an eight-month low to signal a broad stagnation in employment. "The ongoing upturns in output and new order book volumes encouraged companies to engage in input buying, leading to further increases in inventories," said report.
"Remaining comfortably above the crucial 50.0 threshold, the latest reading signalled a sharp improvement in the health of the private sector. Notably, the rate of growth was stronger than the long-run series average (54.5)," said the report.
Khatija Haque, head of Mena Research at Emirates NBD, said the rise in output and new orders in June is encouraging, although firms continued to reduce selling prices on average in order to support demand and order growth.
"The survey also highlights the lack of employment growth despite strong the strong increase in new work last month. Overall however, the PMI data for first half 2017 supports our view that the non-oil sectors have grown at a faster pace relative to 2016 same period," said Haque.
In its recent Global Focus report, Standard Chartered forecast a slight pick up in the UAE's non-oil economy with a 3.2 per cent growth in 2017 supported by "a loosening of belt" by Abu Dhabi.
The bank predicted the country's overall economic growth for 2017 at 1.5 per cent, instead of 2.1 per cent as previously estimated, based on a 2.3 per cent contraction in oil GDP. The bank raised the UAE's 2016 growth estimate of the UAE to 2.6 per cent from 2.4 per cent prior, on 2.7 per cent predicted growth in oil GDP and 2.6 per cent growth in non-oil GDP.
The International Monetary Fund said in its recent forecast that the UAE's economic growth would accelerate to 4.4 per cent in 2018 as global growth is expected to pick up steam from 2017, driven by rebound in investment, manufacturing and trade.
According to the Institute of International Finance, the UAE economy has been resilient to the impact of the slump in oil prices as it has benefited from a relatively diversified economy, excellent infrastructure, political stability and ample foreign assets.
Emirates NBD report noted that problems existed elsewhere in the UAE as employment stagnated. "New export orders fell for the first time in seven months as demand from international markets reduced. Business confidence towards the 12-month outlook eased to the second-lowest in the survey history."
Following a decline in May, there was a renewed increase in input costs. In spite of increased cost pressures, firms continued to offer discounts amid reports of intense competition, said the report.
"The general improvement in operating conditions was closely linked to a sharper increase in output during June from May's 13-month low. The combination of more projects, trends in new orders and favourable economic conditions was reported by panellists to have contributed to greater business activity," it said.
In response to greater output requirements, companies raised purchasing activity at a sharp pace. As a result, inventories rose at a steep pace. Firms mentioned forecasts of greater new work as the key reason behind the latest rise in inventories, Emirates NBD report said.
- issacjohn@khaleejtimes.com