'Solid increase' in UAE business

January saw a further solid increase in output at the UAE’s non-oil producing private sector companies, according to the latest HSBC PMI report.

According to the bank’s Purchasing Manager’s Index (PMI), which tracks the economic health of the country’s manufacturing sector, operating conditions continue to improve sharply, albeit at slightly slower pace.

The HSBC report maintains that the UAE’s non-oil producing private sector companies reported a sharp, but weaker rise in activity in January. Meanwhile, order intakes increased at the second-quickest pace in the series history and workforce numbers rose at a slower pace than seen in December.

The pace of expansion eased to a three-month low, but remained sharp overall. Anecdotal evidence suggested that strong inflows of new work accounted for most of the latest expansion.

The headline PMI fell slightly from December’s 57.4 to 57.1 in January, signalling a further improvement in operating conditions in the UAE’s non-oil producing private sector. Operating conditions in the sector have now improved continuously on a monthly basis since September 2009, with the latest reading among the highest seen in the survey history.

Commenting on the UAE PMI survey, Simon Williams, Chief Economist for Middle East & North Africa at HSBC, said: “The UAE has entered the year growing strong and building momentum, even as some other emerging markets appear to be losing their way. Inflationary pressures are building but this is a sweet spot in the UAE's economic cycle where rapid growth doesn't yet mean a surge in prices.”

New orders rose at the second-quickest pace in the survey history, with around 43 per cent of companies reporting growth. Survey respondents commented on increased marketing efforts and improving economic conditions in the country. New export demand also strengthened in January, with the rate of growth in new export work higher than seen in the previous survey period.

In line with the trends for output and new orders, employment levels rose in January. Higher workloads was the primary factor for the hiring of additional workers, according to panelists. Payroll numbers have now risen for 25 consecutive months, although the latest increase was the weakest since August.

Backlogs of work continued to rise in January, providing evidence of capacity pressures at the UAE’s non-oil private sector companies. However, the rate of accumulation eased and was only modest overall. Meanwhile, suppliers’ delivery times improved at a stronger rate than seen in December.

On the price front, companies reported a further cost increase in January. The rate of purchase price inflation accelerated for the sixth month in succession and was the steepest in nearly one-and-a-half years, with companies commenting on higher prices for raw materials and stronger market demand. Concurrently, wage inflation eased to a six-month low, with the vast majority of the panel indicating unchanged salaries.

The sharp increase in inflows of new business resulted in a rise in purchasing activity at the UAE’s non-oil producing private sector firms. While the rate of expansion eased to a five-month low, the latest index reading remained above the series average. Finally, stocks of purchases accumulated further and at a slightly faster pace than seen in December. Moreover, the expansion was among the sharpest recorded in the four-and-a-half year survey history. 

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