Growth in UAE’s private sector at 34-month high
dubai — The UAE’s non-oil private sector ended 2017 on strong note with business conditions improving at the sharpest pace in 34 months in December, signalling a brigther outlook for a strong recovery this year.
“Steep expansions in output, new orders alongside solid export demand growth underpinned the most recent upturn. In terms of inflation, input cost pressures softened during December, whilst selling prices fell for the fourth month running,” Emirates NBD said in a survey report.
Survey results released by the bank echo most other reports that had predicted a strong rebound across non-oil private sector by the end of 2017, with the UAE expected to post an overall economic growth of to 1.7 per cent in 2017 before the economy gains increased momentum in 2018 to register 3.3 per cent growth, fuelled by partial recovery in oil prices coupled with an ongoing all-out diversification drive and the landmark tax reform.
Analysts believe that while the on-going fast-track diversification aimed at further reducing reliance on crude oil revenues will better place the UAE to entrench itself from further volatility in oil fortunes, a five per cent value added tax will help boost state revenues by Dh12 billion per annum, adding about 1.5 to two per cent to GDP this year.
The non-oil sector expanded sharply in the last two months of 2017, largely due to a strong rise in output and new orders.
“It is likely that the introduction of VAT in January has spurred activity and purchasing in fourth quarter 2017, which is in line with our expectations. Nevertheless, employment and wage growth has been relatively muted, not just in December but for 2017 as a whole,” said Khatija Haque, Head of Mena Research at Emirates NBD.
The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.
The headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index (PMI) — a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy — rose from 57.0 to 57.7 in December, thereby signalling a sharp improvement in business conditions in the non-oil private sector. Furthermore, the pace of expansion was the fastest since February 2015.
According to the survey, nonoil private sector firms in the UAE reported sharp growth in output during the latest survey period. The pace of expansion remained strong in the context of historical data, despite easing since from the 33-month high registered in November.
New order growth accelerated to a 35-month high December. The rate of expansion was sharp overall and comfortably above the historical series average. Panel members frequently commented on a strong level of underlying demand, whilst others reported an increasing inflow of new business from government sources.
The bank’s report noted that after contracting in November, new export orders returned to expansion during the latest survey period. Moreover, the rate of growth was solid overall and the strongest recorded in nine months. According to anecdotal evidence, demand from neighbouring GCC countries picked up in December.
In response to rising output requirements, firms continued to hire additional staff in the non-oil private sector. The latest data thereby extended the current sequence of job creation to 20 months. That said, the rate of hiring remained subdued in the context of historical data.
On the price front, input prices continued to increase during December, in line with the trend seen since June. That said, the rate of inflation eased to a three-month low.
“Contrary to the trend seen for input prices, output charges fell in December. Companies reduced selling prices to stimulate client demand, according to panel member reports. That said, the rate of price discounting was only modest overall,” said the report.
The UAE is also pressing ahead with its drive to improve the business environment and competitiveness, from an already high global ranking by the World Bank and the World Economic Forum.
In the first three quarters of 2017, the PMI averaged 55.8 as compared with 53.8 during the same 2017 period of last year (50.0 threshold separates expansion from contraction). Non-oil activity in Abu Dhabi has been improving after a challenging two years during which deep government spending cuts slowed activity. Key projects, such as the construction of nuclear plants and airport expansion, are progressing.
In the banking sector, the UAE will witness annual credit growth recovering from 1.7 per cent at end-2017 to about five per cent in 2018, analysts pointed out.
While the UAE will continue to overcome the effects of low oil prices and the moderation in nonoil economic activity, inflation is forecast to remain subdued as the decline in rents offsets higher imports prices while inflationary pressures from the introduction of VAT from January 1, 2018, will be partly offset by further declines in rents, analysts pointed out.
—issacjohn@khaleejtimes.com