UAE private sector growth slips but stays ahead of emerging pack

Activity in the private sector eased last month but stayed above many other emerging markets.

Growth in the UAE private sector fell to its lowest level in three months last month but remained stronger than most other emerging markets.

The headline purchasing managers’ index (PMI) reading fell from December’s 57.4 points to 57.1 in January, according to HSBC, which commissions the survey. The score was below Saudi Arabia, but above other emerging markets including Brazil, India, Indonesia, Turkey and South Korea.

The UAE’s survey measures on a monthly basis output across about 400 non-oil private sector firms. A score above 50 marks growth, while below that level shows contraction.

“The UAE has entered the year growing strong and building momentum, even as some other emerging markets appear to be losing their way,” said Simon Williams, the chief economist for Middle East and North Africa at HSBC. “Inflationary pressures are building but this is a sweet spot in the UAE’s economic cycle where rapid growth doesn’t yet mean a surge in prices.”

Driving the growth was a rapid pick-up in new orders, which rose at the second-quickest pace in the survey’s history.

About 43 per cent of companies reported growth, citing increased marketing efforts and improving economic conditions. New export demand also quickened during the month, with the rate of growth higher than that experienced in the previous survey period.

But as has been shown in previous surveys in recent months, inflationary pressures are gathering momentum. About 11 per cent of companies reported higher input prices, with the rate of acceleration in purchase prices rising at the sharpest in 17 months.

Respondents blamed higher market demand and rising prices for some raw materials. The data showed companies passed on some of the higher prices to customers for the second month running.

HSBC forecasts inflation to edge up to 5 per cent this year, the highest rate since 2008 as rent and labour costs push higher.

Despite higher costs in other areas, average staff costs edged up at their lowest level in six months. Most firms reported unchanged salaries.

Saudi Arabia’s PMI score reached its highest level in 15 months. The headline score rose to 59.7. Underpinning the rise was firmer operating conditions, HSBC said.

Export orders and domestic demand both expanded, with the backlog of work also rising, albeit at a slower pace.

As in the UAE, companies’ margins remained under pressure. Strong rises in input prices and purchases prices were not passed on to customers as output prices stayed largely flat.

In contrast, Egypt’s PMI score dipped back into negative territory during the month after two previous months of growth. The headline reading was 48.7.

“The disappointing headline score underscores the long and difficult road Egypt faces to economic recovery,” said Mr Williams.