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UAE economy grows as new orders surge

DUBAI — Non-oil business activity of the UAE private sector rose in September as new orders surged to a 15-month high, a purchasing managers’ survey showed on Wednesday.
The UAE Purchasing Managers’ Index, or PMI, rose in September to 53.8 points, up from 53.3 in the month before, reflecting the economy’s steady pace of growth amid increasing signs of a global slowdown, the HSBC said on Wednesday.

“Non-oil private sector business activity in the UAE strengthened in September, compared to the month earlier, underlining the economy’s strong recovery,” the bank said. Inventories also continued to increase, but at a more modest pace than in August.

New export orders increased for the 28th month in a row, albeit at a marginally stronger rate than in August. Staffing levels expanded during September as companies responded to greater production requirements.

“It is a positive reading that suggests the UAE is one of the few economies in the world where private sector growth is accelerating rather than losing pace,” said Simon Williams, chief economist for the Middle East & North Africa at HSBC.

“I’m still concerned by the UAE’s reliance on export demand, and by the rate of employment growth which is still disappointingly slow. But for now the economy is showing resilience and with new orders strengthening, there’s good reason to expect the UAE to maintain momentum into the year-end.”

HSBC’s PMI index, the first of its kind to be published in the Gulf, was compiled with data provider Markit and based on data compiled from monthly replies to questionnaires sent to purchasing executives in approximately 400 private sector companies.

According to the report, production levels expanded for a 32nd straight month during September. In addition, the rate of growth was the quickest in three months and remained solid, while growth in new business reached a 15- month high thanks to improved market conditions and stronger client demand, the report said.

September is considered the start of the high season in the UAE, as tourists, merchants and investors return to the Emirates after the hot summer lull in July and August.

Stock markets in the UAE confirm HSBC’s positive assessment, as the Dubai Financial Market and the Abu Dhabi exchange ADX advanced year-to-date by 19.80 per cent and 10.30 per cent, respectively, representing the best performances among all Gulf Arab stock markets.

However, Williams added that it is too early to relax about the UAE’s non-oil economic growth. “I’m still concerned by the UAE’s reliance on export demand, and by the rate of employment growth which is still disappointingly slow.”

Williams remains optimistic. “As for now the economy is showing resilience and with new orders strengthening, there’s good reason to expect the UAE to maintain momentum into the year end.”

On the price front, overall input prices continued to rise, though the rate of inflation eased slightly from August. Higher purchasing prices were the key driver of overall input price inflation as suppliers raised prices in line with higher demand for inputs. Staffing costs continued to increase in September, but inflation of wages in the latest survey was modest.

HSBC’s upbeat report on the economy is augmented by a revised economic growth forecast by the National Bank of Abu Dhabi to 3.3 per cent from the 2.6 per cent it projected at the beginning of the year as the nation produced more oil, which yielded better prices.

According to NBAD group chief economist Dr Giyas Gokkent, the UAE is in a position to raise output given the availability of new capacity if events continue to unfold as they have in 2012 with Iranian output declining. “This would result in an upward revision to our current growth estimate.”

Issac John, 4 October 2012

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