UAE businesses confident of return to growth

Growth in the nation's private sector is at its highest level this year, a new survey reveals.

Growth in the UAE private sector is at its highest level this year, indicating a revival of business confidence in the economic outlook, the region's first survey of company purchasing managers reveals. Manufacturing, services and retail are all showing signs of expansion, data from the new HSBC UAE Purchasing Managers' Index (PMI) show. Designed to track the performance of the three sectors, the index is shedding light for the first time on an important component of the non-oil economy.

Featuring economic data compiled over the past 14 months by HSBC and the financial information services company Markit Economics, the bank yesterday unveiled its first set of results, which showed a 10-month high for last month. "Recovery has come late to the UAE and the pace still looks muted but the survey strongly suggests that the economic environment has normalised and growth is under way," said Simon Williams, the chief economist for the MENA region at HSBC.

Current output growth and new business orders have been helping to drive the growth, the index shows. The private sector is recovering from the global financial crisis that led to a slowdown in projects and choked off demand for new business. Stronger oil prices, recent bond sales and a Dubai World debt restructuring agreement have helped to bolster confidence in the recovery. PMIs, which are used around the world, give politicians, investors and economists a reliable gauge of the health of the economy. The indexes are usually compiled every month by specialist companies independent of governments and can provide a detailed real-time snapshot of changes in the economy.

The UAE index is based on data compiled from monthly replies to questionnaires sent to purchasing executives at about 400 private-sector companies across the manufacturing, services and retail sectors. The data include new orders, output, employment, supplier delivery times and stock of items purchased. A reading in the headline index of above 50 indicates an overall increase in activity and below 50 an overall decrease. The seasonally adjusted reading for the UAE last month was 52.6, the highest since November last year.

HSBC has added the UAE and Saudi Arabia to the 10 countries it had been covering with its PMI research. Both countries will also be added to the HSBC emerging markets index, a separate quarterly report that allows investors to compare PMI data on 16 countries. "Governments, investors and companies now have access to credible, independent PMI data on an ongoing basis," said Simon Cooper, the chief executive of HSBC in the MENA region. "That can only benefit long-term investment for the UAE."

A closer examination of the UAE data shows that output growth picked up last month to reach its highest rate since April. Total new-order receipts also increased, rising at the steepest rate for nine months. Firms hired more staff and stepped up buying activity as they prepared for greater business requirements and company expansion. Both domestic and external demand for the country's goods and services remained strong during the month. The indices monitoring trends in total new work and new export orders were above the neutral level of 50. Companies said demand from trading partners had improved, particularly in Saudi Arabia and Qatar.

In contrast, outstanding business fell last month, as it has throughout the 14 months of the survey. Despite a Ramadan-related pickup in consumer prices, the September data also suggested underlying inflationary pressures were weak, said Mr Williams. "Although input costs picked up modestly, output prices were stagnant, wages remained flat and the economy continued to show signs of carrying significant spare capacity," he said.

Private sector growth in the UAE, however, did not match the rate of expansion in Saudi Arabia. The kingdom's PMI remained above 55 last month for the 14th consecutive month, indicating businesses were planning for strong growth. The index for the kingdom dropped to 58.4 last month from 59.1 in August.