UAE non-oil economy strengthened in September on new order boost

New orders accelerated sharply to a more than four-year high, the S&P index shows

The Dubai skyline. The upturn in new work in the UAE was the fastest since June 2019. Sarah Dea / The National

Business activity in the UAE’s non-oil private sector expanded robustly in September as the addition of new clients, competitive pricing and sturdy underlying economic conditions increased demand.

The seasonally adjusted S&P Global purchasing managers’ index reading climbed to 56.7 in September, from 55 in August, setting it well above the neutral 50 mark that separates growth from contraction.

New order growth accelerated sharply to a more than four-year high, according to the survey.

The latest reading signals a “strong and accelerated expansion” in the non-oil private sector, it said.

The index recorded its first increase in three months in September, driven by a “much sharper rise in new work intakes than one month ago”, the survey found.

“The upturn in new work was the fastest since June 2019, supported by new client wins both domestically and in export markets,” said David Owen, senior economist at S&P Global Market Intelligence.

“Activity growth, likewise, quickened, though only mildly, and remained weaker than June’s recent high. This also marked the first time since May 2021 where the output index was behind new orders, suggesting that businesses did not feel the need to boost activity to such a considerable extent.”

The new orders sub-index climbed more than seven points to its highest level since June 2019, signalling a considerable upturn in new order inflows last month. About 38 per cent of survey participants noted a monthly rise, compared with 8 per cent who saw a fall.

The positive effect on output expectations was more pronounced in September, as confidence improved again to the strongest since March 2020.

“Where new orders grew, a number of businesses noted having more clients, which some, in turn, linked to stronger economic conditions and lower prices amid competitive pressures,” according to the survey.

The UAE's economy is expected to expand by 4 per cent in 2024 and 3 per cent this year, driven by strong growth in its non-oil sector, S&P said in a report last week.

The government's economic and social measures implemented over the past two years “are strategically designed to set the stage for sustained, long-term economic expansion”, it said.

Key contributors to the country's economic growth next year will include wholesale trade, industry, real estate, construction, financial services and tourism, as well as oil and gas, it added.

S&P's economic growth forecast is in line with projections from the UAE Central Bank, which expects the country's economy to expand by 3.3 per cent this year.

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Demand strength rose in domestic and external markets, the PMI data shows.

New orders from foreign clients increased at the sharpest pace seen in just more than four years, according to the survey.

Overall selling prices continued to fall in September, although, similar to August, the pace of discounting was "only modest".

While several companies opted to cut their charges to promote goods and services and limit the impact of greater competition, some raised their charges due to rising input costs, the survey said.

In response to new business gains, UAE non-oil companies "expanded their output to a greater degree" at the end of the third quarter.

"Demand growth ... spurred greater purchasing at non-oil firms in September, which acted to quicken the pace of purchase price inflation. Price discounting at businesses continued, albeit to only a modest degree, suggesting that competition had limited pricing strategies," Mr Owen said.

Non-oil businesses enjoyed a further improvement in supply chains in September, as delivery times shortened to the greatest extent since July 2019.

On the cost side, there were reports that broader inflationary pressures and stronger input demand had led to increases in raw material prices. Consequently, purchasing (and overall) costs rose solidly and at the quickest pace for more than a year, the survey found.

However, expansion in inventories and employment softened, increasing at the softest rates in 14 and seven months, respectively.

"Backlogs of work rose at the softest rate in over two years, while both inventory and staff growth slowed, indicating that firms had sufficient capacity to deal with the influx of new orders," Mr Owen said.

Updated: October 04, 2023, 8:46 AM