Optimism rises on uptick in UAE's non-oil private sector economic growth

Businesses see investments and tourism as drivers of economic expansion this year

Emirati fisherman hoist the UAE flag on their boat in Dibba - the UAE has rolled out monetary and fiscal measures to support its economy during the coronavirus crisis. Chris Whiteoak / The National

The UAE non-oil private sector economic expansion slowed in December but maintained its growth trajectory with businesses hoping the economy will rise this year on the back of investments and tourism.

The headline seasonally-adjusted IHS Markit UAE Purchasing Managers’ Index — a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy — fell marginally to 50.2 last month, from 50.3 in November. It remained above the 50 mark that distinguishes expansion from contraction.

The rate of improvement in business conditions was fractional and the slowest in the decade-long sequence of growth in the second-largest Arab economy. Output growth was the weakest in more than eight years and new work rose marginally in December, IHS Markit said in a report on Monday.

The slowdown in output growth, however, failed to sway projections by companies for activity in the coming year. Expectations were "firmly positive" in December and much stronger than the average for the series, with the Expo 2020 proving a key source of optimism, according to the report.

Despite the optimism, IHS said, the trend for employment remained subdued, with job numbers rising only marginally from the month before.

"Businesses expect 2020 to be a more upbeat year, amid forecasts of greater tourism and investment in the economy,” David Owen, an economist at IHS Markit said. “This may be able to lift hiring activity, which has remained subdued throughout the past year or so."

The UAE non-oil economy has ended the year on a very different note to where it started. While the first half of 2019 saw demand levels soar in response to price discounting, the second half was much more subdued, with sales struggling to rise despite further price cuts, Mr Owen said.

"December data continued this theme, with the PMI falling to the lowest since August 2009,” he said.

Businesses in the UAE reported a weaker increase in activity during December, marking the third successive month in which the rate of expansion softened. New orders grew marginally, linked to soft demand both at home and abroad and selling charges were lowered again in December, according to the report.

Many companies cited strong competitive pressures as reasons for further discounts. Several respondents said this was a key factor in restoring demand growth.

Purchasing activity in the UAE rose for the first time in three months during December. Companies surveyed related this to higher new orders and a depletion of input stocks, though the overall increase in input buying was only modest.

“This spurred an improvement in vendor performance, as some firms reported placing stricter deadlines on deliveries,” the report said.