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UAE private sector sees steady growth

Latest PMI survey highlights solid recovery based on performance of non-oil companies

Gulf News

Dubai: The UAE's purchasing managers index (PMI), a composite indicator of the performance of the non-oil private sector, remained steady in December, indicating solid recovery in the sector.

The index, compiled by HSBC Holdings and Markit Economics, was 53.8 in October and fell marginally to 52.9 in November and registered 53 in December.

"The latest PMI reading suggests that the economy continues to normalise. The uptick in new orders is particularly encouraging but I still view this as a recovery yet to build momentum," Simon Williams, HSBC's Chief Economist for Middle East and North Africa, said.

The index is based on data compiled from monthly replies to questionnaires sent to purchasing executives in approximately 400 private sector companies in the UAE representing manufacturing, services, construction and retail.

Overall the survey results indicate that the non-oil private sector economy continued to expand in the final month of the year, with both output and new orders growing markedly and job creation picking up a moderate pace.

Record rise

However, stronger demand conditions, alongside unfavourable exchange rates, contributed to a series record rise in input prices.

December data points at an improvement in foreign demand for UAE non-oil private sector goods and services.

New orders rose at a robust rate that was the strongest in over a year.

Respondents cited favourable business conditions and successful promotional campaigns as key reasons for growth.

Some firms made note of a good demand from Saudi Arabia largely driven by government spending.

Index data for December shows input price inflation accelerated noticeably, with over 22 per cent of survey participants noting an increase since November.

Stronger demand for commodities and unfavourable exchange rate fluctuations were the principal factors underlying inflation, according to respondents.

"Even though there was some increase in output prices, it is unlikely that this rise fully compensates for the pick-up in input costs," Williams said.

Average labour costs paid by UAE non-oil private sector companies rose slightly in December, following a fractional decline in November.

It was the eighth time in the past nine months that firms in the sector had increased their staff costs.

Panellists indicated that higher employee payments reflected better company performance.

In anticipation of further new order growth, but also to guard against future commodity price rises, UAE private sector companies built up input stocks in December. Holdings of raw materials and semi-finished goods grew for the second month running and at a series record rate.

The survey shows new work in the UAE non-oil private sector grew markedly in December.

Combination of factors

Around 21 per cent of the survey panel recorded an increase — approximately twice the proportion that saw a decline.

Reports showed that a combination of improved demand conditions, product innovations and aggressive marketing drove the latest expansion.

The survey results confirm recent reports from a number of international and multilateral agencies that in the UAE economy is going through a strong economy phase largely driven by the non-oil private sector. The International Monetary Fund has forecast 2.4 per cent growth for 2011, and Standard Chartered has forecast 4 per cent growth for the UAE economy.

"Although there is good enough reason to believe that the UAE economy is on the recovery path we should keep in mind that we are still at an early stage of that recovery process," Williams said.