Strong start to new year for UAE companies

HSBC's UAE purchasing managers index, a measure of private sector health, rose to a record peak last month.

Turmoil across north Africa has not dented order books in the Emirates as businesses enjoyed a prosperous start to the new year.

Private-sector activity surged to a record high last month, indicating a strengthening outlook for companies, new data show.

Expansion in orders, activity, employment and purchasing accelerated, according to HSBC's purchasing managers' index (PMI), released yesterday.

Nevertheless, the positive data mask signs of pressures holding back stronger corporate performance. Rising prices of fuel and other commodities squeezed companies' profit margins.

Wages also remained flat, despite increases in employment.

"It's another encouraging reading, consistent with our view of the UAE as an economy firmly in recovery mode," said Simon Williams, HSBC's chief economist for the Mena region.

Strengthening business conditions reflect a brighter outlook for the economy this year. A poll of economists by The National forecast higher growth of 3.5 per cent this year.

Last month's seasonally adjusted headline PMI rose to a peak of 54.2, up from 53 in December. The survey began in August 2009.

A rise in output growth enabled companies to increase their charges at the fastest pace recorded.

New business receipts also increased at their quickest rate in 14 months, according to the survey.

Especially significant is that domestic demand was the biggest driver of new orders, with export business rising at a weaker rate. Over recent months, exports have been a main generator of new business as the domestic market remained weak.

Prices for inputs as diverse as copper and rice have risen in recent months. To offset these increases, companies hiked their output prices, which increased at the steepest rate recorded in the survey's history.

But Mr Williams said he did not expect the higher input costs to translate into a significant pickup in inflationary pressures.

"The economy is still too fragile for consumer prices to allow firms real pricing power," he said.

UAE consumer price inflation slowed to 0.9 per cent last year, its lowest annual level in years.

Backlogs of work continued to fall last month and delivery times also dropped, suggesting the economy was still working through an excess of capacity, HSBC said.

Improved business conditions and company expansions encouraged companies to add staff last month.

"All of the job boards are busier," said Christo Daniels, the managing director of the recruitment company Morgan McKinley UAE. "There's a general pickup in the positive mindset, and a lot of HR executives are now able to tap into recruitment budgets."

But the lack of movement in salaries suggested supply still outstripped demand in the labour market.

"Salaries have remained flat as there's still pretty tough competition for jobs," Mr Daniels said.