UAE non-oil sector rebounds

The UAE's non-oil private sector regained some of the lost growth momentum in July as business conditions improved at a faster pace in the emirate, a corporate survey revealed.

Latest data showed that business activity growth in the UAE's non-oil private sector rebounded last month from a 22-month low in June as output and new orders rose at sharper rates, contributing to a robust overall improvement in business conditions.

The seasonally-adjusted Emirates NBD UAE Purchasing Managers' Index, which covers manufacturing and services, rose to 55.8 points last month from 54.7 in June. A level above 50 indicates expansion and below 50, contraction. The output sub-index also rose sharply to 60 points in July from 57.5 in June, while the new orders sub-index climbed to 60.2 from 57.7 points. "July's PMI is another indication that growth in the UAE's non-oil economy is proving resilient in the face of a challenging regional and global economic environment," said Jean-Paul Pigat, senior economist at Emirates NBD.

The survey, sponsored by Emirates NBD and produced by Markit, said growth at the start of third quarter was broadly in line with the average seen over the second quarter (56 points), but remained weaker than the trend recorded so far this year (56.8).

"The rebounds in output and new orders were particularly encouraging, and we expect this momentum to continue through the remainder of 2015," Pigat said.

Job creation was also sustained at a solid pace as non-oil private sector employment in the UAE continued to increase in July, marking a 43-month period of job creation. The rate of hiring was unchanged from June's solid pace, and remained in line with the average noted over six years of data collection. A number of panellists associated workforce growth with the start-up of new projects.

"The rebound in non-oil sector was expected by government and private businesses alike. The IMF has in fact positively revised the non-oil GDP growth for UAE to 4.4 per cent this year and 4.5 per cent next year in view of the Dubai's thrust for the core service sectors and diversification for non-oil sectors by Abu Dhabi. This change in the outlook will bring about positive sentiments in the business community," Atik Munshi, managing partner, Horwath Mak, told Khaleej Times.

Dr Preeta George, acting dean and professor of economics at SP Jain School of Global Management, said the rebound of the non-oil private sector in July after the holy month of Ramadan is a normal phenomenon, but it is of particular significance this year given the dip in oil prices and its expected impact on the growth of the economy which is revised downwards to 3.2 per cent.

Referring to the IMF, she said the non-oil economy is estimated to grow by 4.4 per cent this year and this will provide a cushioning effect to growth. "This has been possible due to the growing importance of this sector and can be attributed to UAE's pioneering efforts towards diversification. With several projects lined up to meet the 2020 deadline, the non-oil sector is poised to play a significant role in UAE's growth story."

On the price front, data highlighted divergent trends in July. The rate of cost inflation picked up to the quickest since February, while charges fell for the fifth time in the past six months. The survey said cost pressures intensified in July, amid faster rises in both purchase prices and salaries. The rate of input price inflation picked up to a five-month high, but remained subdued relative to the series average.

Prices charged by non-oil private sector companies decreased in July. Although marginal, the latest fall was the fifth in the past six months. Some firms saw their pricing power diminish as they attempted to secure new business. "Dubai and other emirates have tried to reduce their reliance on oil revenues and have taken measures to boost the service and manufacturing sectors," Munshi said.

He said the service sector is expected to see a major positive change for the UAE in the near future, where its contribution to the gross domestic product is anticipated to improve substantially.

"This is a sign of that the economy is moving towards being mature. The sentiment of the market will further improve if the overall market size of the UAE escalates. Once we reach near World Expo 2020 the economy is likely to be even better," he said.
Source: Khaleej Times