UAE's non-oil private sector economy improves in October on demand boost and new business

Employment in the Emirates grew at its fastest pace since July 2016

The Dubai skyline. The UAE's non-oil economy remained robust in October amid a sharp rise in consumer demand. AFP

Business activity in the UAE’s non-oil private sector economy continued to improve in October as new business and output climbed along with a rise in demand and employment.

The seasonally adjusted S&P Global purchasing managers’ index climbed to 56.6 in October, up from 56.1 in September. The index reading was a shade under the three-year high of 56.7 achieved in August, underpinning the health of the country's non-oil economy.

A reading above the neutral level of 50 indicates growth while one below it points to a contraction.

“The UAE PMI crept back up … indicating that the non-oil private sector had continued to grow at a robust pace at the start of the fourth quarter,” said David Owen, an economist at S&P Global Market Intelligence.

“The upturn was led by sharp expansions in business activity and new orders, giving further evidence that domestic firms were not only weathering the global economic storms, but enjoying strong demand growth.”

Central to the upturn was another sharp expansion in business activity at the start of the fourth quarter, as businesses surveyed reported higher client demand.

The rate of activity growth in the non-oil economy rose sharply from September and was the second fastest since July 2019.

New order inflows also rose at a steep rate in October, with companies posting the joint-strongest expansion in 11 months.

Some businesses cited growth in new clients, lower prices, improved services and the coming Fifa World Cup in Qatar as contributing factors to the sharp rise in sales.

However, with a sharp rise in demand, businesses faced additional strain on operating capacity in October that led to an increase in work backlogs. Both existing projects and coronavirus-induced shipping delays contributed to the build-up of backlogs.

Businesses dealt with the backlog pressure by increasing headcount at the fastest pace since July 2016, extending the sequence of growth in employment in the Emirates to six months.

“The key movements in October were seen on the capacity side as businesses responded to rising backlogs by increasing their employment numbers,” Mr Owen said.

“Firms also looked to stock up on inputs as they prepare work schedules to address their backlogs, leading to a rapid increase in purchasing activity that was the fastest for over three years.”

The UAE economy, which made a strong rebound from the pandemic-induced slowdown last year, has picked up pace this year. The Arab world's second-largest economy is set to expand by 5.4 per cent this year, according to the UAE Central Bank.

Emirates NBD forecasts that the economy will expand 7 per cent in 2022, due to a higher estimate for the energy industry's output and the “robust growth” of its non-oil sector, setting up the country for its fastest annual expansion since 2011, when output grew by 6.9 per cent.

Meanwhile, Abu Dhabi Commercial Bank projects growth of 6.2 per cent, driven by both oil and non-oil gross domestic product growth.

The UAE’s foreign trade for the first six months of this year exceeded Dh1 trillion ($272 billion), compared with Dh840bn for the same period before the Covid-19 pandemic.

Revenue from the tourism sector, a key contributor to the country’s non-oil economy, exceeded Dh19bn during the first half of this year while total hotel guests in the same period reached 12 million.

Growth in the number of hotel guests was up 42 per cent from the same period before the pandemic.

Sales of off-plan and secondary property in Dubai hit a 12-year high in the third quarter, both in terms of volume and value, according to Property Finder.

Average prices for residential property in the emirate rose by 8.9 per cent in 12 months to the end of September, with average apartment prices increasing 8 per cent and villas recording a more than 14 per cent jump, according to a CBRE report.

In Abu Dhabi, villa and apartment sales prices rose 4 per cent a year during the third quarter. The emirate recorded 7,474 property transactions worth more than Dh22.51bn in the first six months of the year.

Meanwhile, in Egypt, the headline PMI index reading stood at 47.7 in October, slightly higher than September's 47.6.

It is the highest index reading since February but remains below the survey’s long-run average, underpinning a decline in operating conditions in the country’s non-oil private sector economy.

Businesses reported a “sustained decrease” in new business inflows, as inflationary pressure rose and spending dropped.

“Inflation continued to weigh on consumer sales and business spending,” Mr Owen said.

“Firms signalled that the deteriorating local and global economic environment was likely to hurt the non-oil sector even further, with business optimism regarding the next 12 months sliding to its lowest in the series' history.”