UAE private sector activity hits highest level since September 2015

Higher oil prices have likely contributed to improved sentiment and business activity over the last few months, Emirates NBD said.

Higher oil prices have likely contributed to improved sentiment and business activity over the last few months. Antonie Robertson / The National
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Business optimism in the Emirates is at its highest in 17 months.

Non-oil private sector activity picked up last month as new orders rose and prices increased for the first time in more than a year, according to the latest survey of economic sentiment in the country.

The Purchasing Managers’ Index survey, sponsored by Emirates NBD and produced by IHS Markit, hit a 17-month high of 56 in February, up from 55.3 in January. A reading above 50 indicates the economy is expanding; below that figure it is contracting.

“The rise in the UAE PMI to its highest level since September 2015 suggests that demand has strengthened, both domestically and abroad. Higher oil prices have likely contributed to improved sentiment and business activity over the last few months,” said Khatija Haque, the head of Mena research at Emirates NBD.

Average selling prices rose for the first time in almost one-and-a-half years, as companies passed on to clients part of their additional costs to protect margins.

New business increased last month at its fastest rate since September 2015, and higher export orders meant that companies raised output further. This in turn meant extra staff were hired, but the pace of job creation softened to its weakest in four months, according to the index.

“UAE non-oil private sector companies expect the favourable economic scenario to be sustained over the coming 12 months, with one in five companies forecasting output growth in the year ahead. Optimism reportedly reflected aggressive marketing campaigns, strong demand and new projects in the pipeline,” Emirates NBD said.

Still, many other economists remain cautious about a full economic recovery in the short term as oil prices still remain far below 2014 levels. Standard Chartered reduced its GDP growth forecast to 2.1 per cent this year from 3 per cent, but expects the economy to grow by 3.5 per cent in 2018 ahead of Expo 2020 in Dubai.

“Preparations to host Expo 2020 will shore up a lot of activity through 2018-19, supporting our positive outlook for the medium term,” said Dima Jardaneh, a Dubai-based economist at Standard Chartered.

In neighbouring Saudi Arabia there was also reason for cheer as the PMI increased at its fastest pace since August 2015 as firms stepped up purchases, gearing up for an improvement in demand from consumers in the months that lay ahead following a tough couple of years for the world’s biggest oil exporting economy.

The Emirates NBD Saudi Arabia PMI rose to 57 in February from 56.7 in January. And while the reading was the highest in one-and-a-half years, it still remained below the long-term average of 58.3. That suggests the country’s economy, which is most reliant on revenue from hydrocarbons in the region, has not yet fully recovered from the oil price crash that started in the summer of 2014, with crude losing up to 70 per cent of its value.

Meanwhile in Egypt things were not as rosy for the North African country on the February PMI front as the measure continued to be below 50, signalling contraction that has been ongoing since August. There was, however, some improvement as it rose slightly to 46.7 from 43.3 in January, indicating some measure of stability following the flotation of the Egyptian currency in November. While freeing the Egyptian pound from a peg to the US dollar has caused a spike in inflation after the currency depreciated 150 per cent, it has helped to attract fresh foreign investment.

“While the PMI data still indicated a contraction in Egypt’s private sector in February, the headline index rose to its highest level in six months,” said Tim Fox, the head of research and chief economist at Emirates NBD. “Inflationary pressures remain high but the rate of input price inflation eased markedly in February. Overall, there are signs of stabilisation in the non-oil private sector.”

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