Strong month for UAE's non-oil sector

Growth in the UAE's non-oil private sector eased in January from a 19-month high seen in the previous month as expansion of output and new orders slowed, a survey showed on Tuesday.

HSBC’s purchasing managers index which measures key planks of the non-oil economy such as the construction sector dipped in January. Pawan Singh / The National

Record growth in overseas business drove UAE private sector activity last month and gave firms confidence to buy more stock.

Business conditions in the non-oil private sector, as measured by the headline reading of HSBC's purchasing managers index, dipped to 55 points in January from 55.6 the month earlier, the bank said yesterday.

But the reading was still the second highest in the survey’s 19-month history. The key planks of the non-oil economy, the manufacturing, retail, services and construction industries are measured in the index.

“The January reading is another strong reading which adds to our sense of a recovery which lagged much of the region in 2012 but is taking shape now,” said Liz Martins, the senior economist for Middle East and North Africa at HSBC.

“The strength in new export orders in particular is encouraging and probably speaks to robust demand elsewhere in the Gulf region, particularly for Dubai’s non-oil goods and services.” Companies reported a rise in new orders for goods and services from abroad during the month, lifting export orders to 58.2, their highest level in the index series’ history.

Also reaching a new high was the quantity of purchases index, which measures the amount of stock companies buy. More than one in four surveyed respondents recorded an increase in buying during the month.

Higher new orders and improved market conditions were cited as reasons for the purchasing growth.

The UAE economy has been lifted in recent months by strong demand for its non-oil goods and services from other countries in the Arabian Gulf, bolstered by increases in government spending.   Saudi Arabia, the region’s largest economy, accounted for more than a quarter of total global exports by members of the Dubai Chamber of Commerce and Industry last year.

Other data from the survey also pointed to a strong start to the new year for UAE private-sector firms. Overall new orders dropped slightly but remained strong at 62.4 as more than one in three respondents reported higher order book volumes. Output also rose, with 20 per cent of firms indicating higher production, compared with 8 per cent reporting a decline.

Recruitment increased for the 13th month running as companies hired more staff to help meet an increase in business. Staff costs climbed, the 12th month in a row of higher average wages. But the survey still continued to show little in the way of consumer price pressures. Output prices reached 50.6, little changed from the previous month. In the coming months, the UAE economy was likely to start feeling the benefits of looser fiscal and monetary policies by the government, said Ms Martins.

“The recent unveiling of large- scale infrastructure plans in both Abu Dhabi and Dubai signals a looser fiscal stance going forward,” she wrote in a research note about the survey yesterday.

“And while we have not yet seen evidence of a pickup in private sector credit, strong deposit growth has brought a drop in the loan-to-deposit ratio, suggesting some scope for improvement in 2013.”