Global woes stay abroad as UAE's economy powers on

The UAE reading was underpinned by a robust reading for new orders, which rose to a three-month peak of 59 points, suggesting the economy may maintain momentum in the months ahead. Pawan Singh / The NShow more

A pickup in new orders helped to sustain expansion in UAE business activity last month as the private sector showed resilience to the global slowdown.

Growth in the non-oil private sector dipped slightly to 53.3 last month, down from 53.4 the previous month, according to data released yesterday from the HSBC purchasing managers' index (PMI). But the reading remained above the 50 mark that indicates expansion.

"It's a very solid number compared with much of the world and what's particularly encouraging is the bounce in the new export orders index, after a somewhat worrying drop in July," said Liz Martin, the senior economist in the Middle East at HSBC. "Of course, we remain concerned about the impact of the weak global demand climate but these numbers suggest continued resilience so far."

The UAE reading was underpinned by a robust reading for new orders, which rose to a three-month peak of 59 points, suggesting the economy may maintain momentum in the months ahead.

Firms attributed the rise to better market conditions, strong demand and higher sales.

Growth of new orders was strong in both domestic and foreign markets.

Other data also signalled confidence on behalf of businesses about the outlook. Stocks of purchases rose as companies built inventories in anticipation of continuing sales growth. Firms also raised staffing costs in the form of higher average wages.

Hiring also picked up moderately. Businesses reacted to further rises in new work and activity requirements by hiring extra staff during the month. Payroll numbers have now risen for eight months in a row.

Backlogs of work rose last month as growth in new business accelerated at a faster rate than firms were able to handle existing work.

Competitiveness among firms also increased as demand remained robust. As a result, companies discounted goods and services for the second time in the past three months.

The results mirror a similarly positive trend in Saudi Arabia. Strong domestic demand helped to lift the kingdom's reading to 58.31, up from a seven-month low in July, data released on Monday showed.

In contrast, private sectors in other global economies are faltering as slack appetite from consumers and companies saps output. China, South Korea, the euro zone and the United Kingdom all recorded negative PMI readings last month.

Still, HSBC economists urged caution about the UAE data. Although the figures are seasonally adjusted, they may not fully take into account the impact of the hot summer months and Ramadan. The bank's economists are also worried the three-month high increase in new export orders may prove tricky to maintain amid the choppy global environment.

Other economists say the positive trend may be difficult to sustain as the euro-zone debt crisis drags on and activity cools in key trading partners such as India and China.

"The UAE is benefiting from strong demand in the GCC and Saudi Arabia as it has a diverse economy but it will slow later in the year due to the deteriorating global environment and weak domestic demand on the back of problems in the local banking sector," said William Jackson, an emerging markets economist at Capital Economics.