A rise in the HSBC Purchasing Managers' Index (PMI) last month points to greater output growth and job creation in the UAE.
The index, which measures the performance of manufacturing and service companies in the private sector, rose to 52.3 points last month up from 52 the month before. Based on a survey of 400 firms, the adjusted index remains above the 50-point mark that separates growth from contraction.
Output growth rose to 53.4 from a five-month low of 52.5 in February. Jobs growth rose at its fastest since October last year.
But HSBC says the data is still signalling the Emirates' economy is not firing on all cylinders.
"The data is still painting a picture of an economy that is stable, not one that is gaining momentum," said Simon Williams, the chief economist for the Middle East and North Africa at HSBC.
New orders fell to a three-month low of 56.5 points. Decelerating export orders helped to pull new orders down. New export orders fell from 55 points in February to 52.6 last month. A softening in manufacturing activity in other parts of the world and the West's sanctions against Iran, an important UAE trading partner, probably contributed to the sluggish performance, said a research note from Capital Economics.
Despite the rise in labour demand, the increase was modest and wages remained stagnant, HSBC said.
"Employment still looks sluggish, wages flat and export demand soft. Another month of flat output prices is good news for consumers but continues the pressure on producers who have to absorb higher input costs," said Mr Williams.
Saudi Arabia's PMI index also expanded last month, although the headline index fell to a three-month low. The Sabb HSBC Saudi Arabia PMI index slipped to 58.73 last month from 59.62 the previous month.