Business activity in the UAE's non-oil private sector economy hit its highest level in more than four years in October, driven by a sharp rise in new orders and output.
The seasonally adjusted S&P Global purchasing managers’ index – a key gauge of the nation’s non-oil economy – showed “robust improvement”, climbing to 57.7 in October, from 56.7 in September, its highest since June 2019.
A reading above the neutral level of 50 indicates growth while one below it points to a contraction.
The latest reading prompted the “greatest improvement in operating conditions” since the middle of 2019, according to the survey.
“Sharply rising new order intakes” supported a marked increase in activity, as well as further additions to purchasing and staffing levels, it said.
“Strong economic conditions in the non-oil sector extended into the final quarter of the year, as October PMI results signalled a new recent record for new business growth,” said David Owen, senior economist at S&P Global Market Intelligence.
“Rising at the fastest rate since June 2019, new order volumes provided additional support to output, which continued to rise markedly.”
The new orders sub-index posted its strongest reading since June 2019 in October.
“Overall new business rose markedly, as surveyed firms highlighted strengthening demand conditions bringing new clients and increased project work,” the survey found.
“The upturn was strong both domestically and overseas, with foreign new orders also growing at the fastest rate for more than four years.”
The rate of expansion in new business activity was helped by a further rise in employment levels and the clearing of backlogs, S&P said.
The UAE economy expanded by 3.7 per cent annually in the first half of the year, driven by strong non-oil sector growth as the country continues to pursue its diversification goals, Minister of Economy Abdulla bin Touq said last week.
While the first-half rate of economic growth “may seem modest” compared with last year, it is still “robust growth against the backdrop of global and regional uncertainty”, Mr bin Touq told the AIM summit in Dubai.
The non-oil sector's “staggering” 5.9 per cent growth in the first six months of the year is “even better news”, as it accounts for about 71 per cent of gross domestic product, illustrating the success of the UAE’s diversification initiatives, he said at the time.
The UAE’s economy is expected to expand by 3 per cent this year and 4 per cent in 2024, driven by strong growth in its non-oil sector, S&P said in a September report.
Key contributors to the country's economic growth next year will include the wholesale trade, industry, real estate, construction, financial services and tourism sectors, as well as oil and gas, it said.
S&P’s economic growth forecast is in line with projections from the UAE Central Bank, which expects the economy to expand by 3.3 per cent this year.
Business costs rose sharply in October on the back of an increase in fuel and material prices, as inflationary pressures accelerated to a 15-month high, the PMI data showed.
Higher cost of living levels and efforts to retain staff also contributed to a modest rise in wages, according to surveyed companies.
“There were some indications that inflationary pressures are picking up and starting to influence company's pricing strategies,” Mr Owen said.
“Overall cost burdens rose at the fastest rate for five months, leading to an increase in output prices. After dropping to a recent low of 1 per cent in July, headline inflation could therefore pick back up in forthcoming readings.”
Overall, the outlook for business activity remained strong in October and was the second-highest since March 2020, despite softening from September, the survey said, adding that robust demand expectations were largely behind the positive outlook.
“High business confidence levels, meanwhile, suggest that firms do not expect this momentum to lose steam, as predictions for the year ahead were the second strongest since March 2020,” Mr Owen said.