Record month for orders and output at UAE companies

Export orders grew in August at their fastest rate since 2009, while company backlogs grew for the fourth consecutive month.

An improving banking sector is acting as a spur to private-sector investment, the survey results show. Mona Al Marzooqi / The National

More UAE companies experienced growth in output and orders last month than at any time since 2009, according to a key economic index.

Export orders grew in August at their fastest rate since 2009, said the HSBC Purchasing Managers’ Index (PMI) report. Company backlogs grew for the fourth consecutive month, as economic conditions improved.

“For now, this is a boom in full flow,” said Simon Williams, the chief economist for the Middle East and North Africa at HSBC.

The PMI, a poll of business leader expectations, hit 58.4 – its highest level since data collection began in 2009. A value above 50 means that the economy is expanding.

The measure is up from 58 in July, and 54.5 the previous year – indicating that the pace of growth has hastened. Employment recorded another improvement, as firms hired more staff overall for the 32nd month in a row.

“Activity in the UAE’s non-oil sector continues to be quite strong, and has been supported by the pick-up in the global economy and new export orders,” said Jason Tuvey, an emerging markets economist at Capital Economics.

Corporate earnings have also increased year on year, according to Markaz Research, which said that profits at the UAE’s listed firms have increased by 11 per cent compared to the previous year.

An improving banking sector is acting as a spur to private-sector investment, the data show.

“We have seen that credit growth has picked up for the first time in the last five years, reflecting the better health of the banking system,” Mr Tuvey said.

But a breakdown of retail bank lending suggests that growth is not being fuelled by an unsustainable credit-fuelled real estate boom.

“Mortgage credit growth remains relatively weak,” Mr Tuvey said, “so companies are taking on more credit.”

Instead, parastatals are borrowing to fund investment projects. “Government-run enterprises in particular are taking on debts, especially in light of construction projects ahead of the Expo,” he added.

Ramsey Jurdi, the president of the American Business Council for Dubai and the Northern Emirates, said that American demand for goods and services in the UAE was increasing, in a sign that the country is benefiting from the global recovery.

“The first and second quarter have been very positive for US-UAE business ties,” he said.

“This is not surprising given that total trade between the US and the UAE reached a record high of $22.30 billion in 2013. I expect that trade will continue to rise over the next several years, in anticipation of Expo 2020, increasing use of the UAE as a hub for Africa, and growing outbound investment into the US,” he said.

The PMI data also pointed to rising inflation, as input prices increased for a number of firms. Costs have risen continuously on a monthly basis since April 2010, according to the report.

“Inflationary pressures have been picking up recently, which has largely been the result of a pickup in housing costs, but there are tentative signs that underlying price pressures may be rising as well,” said Mr Tuvey.

But “core inflationary pressures are still low”, he said. “The UAE does better than the rest of the region. If foreign investors are looking for somewhere to put their money, the UAE would be a good bet.”

More companies are looking to hire.

Mahesh Shahdadpuri, a director at Tasc Outsourcing, a Dubai-based recruitment firm, said: “We have seen high demand [for new employees] in all the major sectors like banking, telecommunications, consumer durables and consumer electronics.”

“Post Ramadan, all sectors seem to be in hiring mode and they are willing to invest in broadening their workforce. There is clear optimism in the market, which implies a positive business trend.”

Buoyant labour market prospects mean that Tasc expects to grow. “We are definitely looking to expand, and plan to hire up to 30 per cent more staff over the next six to nine months.”

The PMI report has underpinned forecasts of continued economic expansion this year.

“The UAE has had a great 12 months,” said Mr Williams. “The September PMI data only strengthens our expectation that the economy will continue to perform well over the remainder of the year and into 2015.”

HSBC and Markit, a research company, poll about 400 business leaders monthly for the Index.

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