Economy gains pace after global slowdown

Business activity in the non-oil private sector rose at its fastest in ten months yesterday as more firms hired staff and orders picked up.

Business activity in the non-oil private sector rose at its fastest in ten months yesterday as more firms hired staff and orders picked up. Pawan Singh / The National

Private-sector business activity in the UAE is growing at its quickest rate in almost a year, in the latest sign the UAE's non-oil economy is picking up speed.

HSBC's purchasing managers' index (PMI), which measures non-oil services and manufacturing, rose to a 10-month high last month, outpacing the euro zone and China.

But growth is still short of Saudi Arabia, the top regional performer, where businesses are benefiting from a large injection of government cash.

"It's a good reading compared to other parts of the world, and it shows demand in the non-oil sector is beginning to pick up, but we are not looking at a trajectory of growth at the same level as the years up to 2008," said Simon Williams, the HSBC chief economist in the Middle East and North Africa.

The overall index rose by a point to 53.5 last month, its highest level since June and the biggest monthly gain since October. A reading above 50 indicates expansion. The output index also rose to a 10-month high.

Total new orders,including domestic and export orders, picked up during the month. The rise came despite the impact of the lingering crisis in the euro zone, an important export market and a major source of tourism. Instead, HSBC said, demand in the GCC and in Asia may be offsetting weakness in the euro zone. New exports are also likely to have reflected the growing number of tourists from those regions visiting the Emirates, said Mr Williams. More than 16 per cent of monitored firms posted higher new orders from foreign clients, almost twice the proportion that recorded a fall.

Two other indicators within the data were also positive. First, the employment component rose to its highest level in nine months. About 12 per cent of firms posted higher staff levels than for the previous month, compared with 7 per cent that cut jobs.

Second, the backlog of work among firms also rose for only the second time in the survey's history.

Kuehne + Nagel, which operates in logistics and transport - a sector that is one of the main drivers of the non-oil economy - has enjoyed a pickup in business in recent months, said Werner Kleymann, the company's president in the Middle East, Turkey and central Asia.

"We are gaining new business, but we have also expanded our sales force, so it's difficult to say whether our growth is down to our own efforts or an improvement in the business environment," said Mr Kleymann, whose company's regional headquarters are in the UAE.

"The UAE plays a major role in our business and is one of the top four markets in the region, which is why we are investing 25 million Swiss francs [Dh100.3m] in expanding our operations at Dubai Logistics City."

But HSBC has warned that other parts of the PMI indicated the difficulties businesses were still facing. Profit margins are still being squeezed as input prices - the amount firms pay for raw materials - grows much faster than the prices they charge their customers. Businesses told the survey they felt restricted from passing on higher charges to customers as competitive pressures remained strong.

The openness of the economy also means it is vulnerable to sluggish global demand, HSBC said.

"Despite the improvement, we view the numbers with some caution," said Mr Williams. "For one thing, we are about to enter the quieter summer season, which, even with seasonal adjustment, may show through in slower growth readings over the coming months."

The IMF expects economic growth in the UAE to decline to 2.3 per cent this year from 4.9 per cent last year. The projected dip is mainly being attributed to oil production not rising at the same pace as last year, the IMF said.

But the lender expects non-oil growth to pick up from 2.7 per cent last year to 3.5 per cent this year.

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