UAE’s non-oil business activity hits highest level in more than four years

A substantial rise in new orders supported a marked increase in activity in December, PMI survey finds

The UAE economy expanded 3.7 per cent annually in the first half of 2023, driven by strong non-oil sector growth. AFP
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Business activity in the UAE's non-oil private sector economy hit its highest level in more than four years in December, driven by a substantial rise in output and new orders, setting the stage for continued expansion this year.

The seasonally adjusted S&P Global purchasing managers’ index ­– a key gauge of the nation’s non-oil economy – climbed to 57.4 in December, from 57 in November, its highest since mid-2019, setting it well above the neutral 50 mark that separates growth from contraction.

The growth signalled a “robust improvement” in the health of the Emirates' non-oil private sector, driven by considerable uplifts in output and new orders, according to the PMI data released on Thursday.

“Economic trends in the UAE non-oil sector remained exceptionally strong at the end of 2023, as the UAE PMI posted its second-best reading in four-and-a-half years,” it said.

Projections for future activity were among the strongest recorded since early 2020.

“The UAE non-oil economy closed the year with another impressive expansion, confirming the strongest quarterly upturn since Q2 2019 and putting the sector in a favourable position for 2024,” David Owen, senior economist at S&P Global Market Intelligence, said.

“Not only did businesses enjoy another substantial increase in output, but sentiment data suggested that they expect this growth to continue, with year-ahead expectations among the highest seen since prior to the Covid-19 pandemic.”

The UAE economy expanded 3.7 per cent annually in the first half of 2023, driven by strong non-oil sector growth as the country continues to pursue its diversification goals, Minister of Economy Abdulla bin Touq said in October.

The non-oil sector, which accounts for about 71 per cent of the country's gross domestic product, posted a “staggering” 5.9 per cent growth in the first six months of last year, he said at the time.

The UAE economy rebounded strongly in 2022 from the slowdown caused by the Covid-19 pandemic, growing by 7.9 per cent during the year, the most in 11 years, to Dh1.62 trillion ($441 billion) at constant prices.

The resurgence came on the back of higher oil prices and government measures to mitigate the effects of the pandemic.

The country's GDP is estimated to expand by 3.6 per cent in 2023, Mr bin Touq said.

An array of measures adopted by the government have improved the resilience of the economy despite the challenges of inflation, monetary policy uncertainty and slowing global economic growth.

Dr Sultan Al Jaber: UAE economy came out stronger after the pandemic

Dr Sultan Al Jaber: UAE economy came out stronger after the pandemic

Strong domestic market conditions supported improvements in new work and sales pipelines in December, despite evidence of slowing momentum from external markets, the PMI survey findings showed on Thursday.

“Supporting this optimism was a softening of price pressures, as purchasing costs rose to the least degree in almost a year. With wage pressures also remaining mild, firms were often willing to offer promotions and run down prices to remain competitive,” Mr Owen said.

“While the drop in charges – the quickest since July – may support additional sales growth in early 2024, the findings suggest that firms are still keeping profit margins low as markets become more crowded.”

The inflation picture across the non-oil sector last month was partly helped by an alleviation of purchasing growth, according to the latest survey data, as some vendors cut material costs after negotiations with clients.

Purchase prices rose to the least extent since January 2023, bringing overall cost pressures down to a five-month low.

As a result of that, companies expanded their staffing levels, with the pace of job creation equalling the series long-run trend, according to the survey.

In Egypt, the non-oil private sector economy continued to soften in December, as new orders declined at the sharpest rate since May.

The country's headline S&P Global Egypt purchasing managers’ index edged marginally higher to 48.5 in December, from 48.4 in November.

“The Egypt non-oil economy rounded off the year with the fastest drop in sales for seven months over December, suggesting that the drag on demand conditions from inflation has not lost any power,” Mr Owen said.

“Inflationary pressures are still widely driven by the economic challenges originating from the Russia-Ukraine war, including a marked depreciation of the [Egyptian] pound against the US dollar leading to an uplift in buying costs.”

Updated: January 04, 2024, 7:58 AM