Business activity in the UAE's non-oil private sector continued to improve in December as a sharp rise in new business and output, and a boost from Expo 2020 Dubai combined to round off a strong year.
The seasonally adjusted purchasing managers' index – a gauge designed to give a snapshot of operating conditions in the non-oil private sector economy – stood at 55.6 in December, down slightly from November's 29-month high of 55.9.
A reading above the neutral level of 50 indicates expansion while one below it points to a contraction.
The latest data by IHS Markit underpinned business activity growth at a marked pace throughout the fourth quarter amid the start of the Expo and due to an easing of restrictions in the Arab world’s second-largest economy.
"The PMI remained close to its recent peak … showing that the benefits to the economy from Expo 2020 and the loosening of Covid-19 measures had remained strong throughout the final quarter of the year,” IHS Markit economist David Owen said.
New orders continued to rise in December, although the rate of growth eased to a three-month low.
Businesses surveyed attributed the rise in sales growth to a substantial jump in travel due to Expo 2020 and strong demand from clients.
About 25 per cent of respondents reported an increase in output from November. New export orders also expanded, although the upturn slowed, according to the latest data.
"New work volumes rose sharply, supporting the fastest upturn in business activity for almost two and a half years," Mr Owen said.
Businesses marginally increased their workforce in December, reflecting a further recovery in employment.
However, they still struggled to keep up with demand, leading to a sixth successive monthly increase in backlogs.
While demand remained strong in December, businesses also reported a much sharper increase in input prices, with those surveyed attributing it to a rise in fuel and energy costs and higher raw material prices.
Purchase costs last month rose at their fastest pace since March and inflationary pressures led businesses to limit their purchasing activity.
Companies are facing the "prospect of higher inflation" and the next few months may prove "more challenging", depending on how the Omicron coronavirus strain affects global travel and local restrictions, Mr Owen said.
The Omicron variant has led to an increase in infections, with the number of cases rising sharply in parts of Europe and Asia and the Americas. Europe is reporting near vertical rises in infections as the new strain spreads across the continent.
The number of cases worldwide now exceeds 295 million, with deaths rising above 5.4 million, according to Worldometer, which tracks the pandemic. More than 256 million people have recovered from the disease.
The rapid spread of the more infectious variant has forced many countries to impose new restrictions to curb the pandemic, raising questions on demand growth and the pace of the world's economic recovery this year.
New work volumes rose sharply, supporting the fastest upturn in business activity for almost two and a half years
David Owen,
economist, IHS Markit
The UAE has also reported a rise in infections in recent weeks, with about 2,500 new cases a day. However, its mass testing and inoculation campaign has kept the pandemic in check.
Authorities administered 18,821 doses of Covid-19 vaccine on January 4 alone, pushing the number of vaccines administered so far to more than 22 million.
Despite the headwinds, businesses are optimistic that the strong economic growth trend will continue.
The UAE economy has made a strong recovery from the pandemic-induced slowdown. Emirates NBD, the biggest lender in Dubai, estimates that the UAE's non-oil sector grew by 3.5 per cent in 2021, with a growth of 4 per cent expected this year.
“Even with the lower December PMI reading, the average PMI for Q4 [fourth quarter of] 2021 was the highest since Q2 [second quarter of] 2019, which supports our view that the UAE economy likely saw faster GDP growth in the final quarter of last year,” Emirates NBD said in a note on Wednesday.
“The UAE’s high vaccination rate and relatively young population stand it in good stead to be able to withstand the current wave of infections without needing to reimpose the strict measures.”
Overall, economic output is forecast to expand 4.2 per cent in 2022, according to the UAE Central Bank's second-quarter review.
Director: Laxman Utekar
Cast: Vicky Kaushal, Akshaye Khanna, Diana Penty, Vineet Kumar Singh, Rashmika Mandanna
Rating: 1/5
Dust and sand storms compared
Sand storm
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- Duration: Short-lived, typically localised
- Travel distance: Limited
- Source: Open desert areas with strong winds
Dust storm
- Particle size: Much finer, lightweight particles
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- Duration: Can linger for days
- Travel distance: Long-range, up to thousands of kilometres
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Who has been sanctioned?
Daniella Weiss and Nachala
Described as 'the grandmother of the settler movement', she has encouraged the expansion of settlements for decades. The 79 year old leads radical settler movement Nachala, whose aim is for Israel to annex Gaza and the occupied West Bank, where it helps settlers built outposts.
Harel Libi & Libi Construction and Infrastructure
Libi has been involved in threatening and perpetuating acts of aggression and violence against Palestinians. His firm has provided logistical and financial support for the establishment of illegal outposts.
Zohar Sabah
Runs a settler outpost named Zohar’s Farm and has previously faced charges of violence against Palestinians. He was indicted by Israel’s State Attorney’s Office in September for allegedly participating in a violent attack against Palestinians and activists in the West Bank village of Muarrajat.
Coco’s Farm and Neria’s Farm
These are illegal outposts in the West Bank, which are at the vanguard of the settler movement. According to the UK, they are associated with people who have been involved in enabling, inciting, promoting or providing support for activities that amount to “serious abuse”.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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