Private sector performance at high

February data point to another positive performance from UAE non-oil private sector companies. Output growth stayed close to January’s record pace, while both new orders and employment rose at stronger rates. However, price pressures intensified at unprecedented rates in the survey’s nineteen-month history.

The headline seasonally adjusted HSBC UAE PMI hit a new high of 54.3 in February, from January’s 54.2. The latest figure signals another robust gain in the health of the sector. The PMI has now registered above the 50 no-change threshold for a year-and-a-half. Supporting the rise in the headline index were faster increases in both new orders and employment.

Incoming new work grew at a substantial and accelerated pace during February. Data show that improvements in both domestic and foreign demand contributed to the increase in total new business, although the former remained the principal driver. Panel members cited favourable economic conditions, company expansions, new product launches, promotional work and strong business reputations as reasons for greater demand.

Simon Williams, Chief Economist for Middle East & North Africa at HSBC, said: “The latest readings strengthen our view of the UAE that recovery is gaining traction and beginning to build speed. The fact that new orders and current output are both rising is particularly encouraging. Higher output prices also suggest a more resilient consumer, although real estate excesses, low bank credit and a slack labour market will keep the headline inflation rate low this year. It’s too soon to judge what impact regional unrest is having on growth prospects. Next month’s PMIs though should give us a clearer steer.”

To accommodate stronger growth of new orders, UAE non-oil private sector firms raised output, hired more staff and built up stocks of purchases in February. Activity levels expanded at a substantial pace, although the rate of increase eased fractionally since January. The accumulation of input stocks also moderated on the month, despite a faster rise in buying activity. Job creation, on the other hand, picked up to a modest pace that was the sharpest since last October.

Latest figures suggest that both UAE non-oil private sector firms and their suppliers were coping well with workloads in February. The former continued to clear backlogs, while the latter made faster input deliveries. Panel members attributed improved vendor performance to sufficient stock levels, efficient service, good client-provider relationships and competition amongst suppliers.

A combination of greater fuel and raw material prices drove up purchasing costs in February. Consequently, purchasing price inflation accelerated to a series record pace. Respondents made particular reference to higher oil prices.
To compensate their workers for increased living costs, firms raised wages and salaries again, and at the fastest rate in the survey history. Even so, the rate of inflation was only modest.

Stronger demand conditions meant that UAE non-oil private sector companies were able to pass on part of their increased cost burdens to customers in February. Charges were raised at an unprecedented rate as a result.

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