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Abu Dhabi, UAEFriday 22 June 2018

UAE, Saudi Arabia's non-oil economies end 2017 on a high note

Business conditions in the UAE improved at the sharpest pace in 34 months in December

UAE's non-oil private sector economy recorded steep expansions in output, new orders alongside solid export demand growth in December. Christopher Pike / The National.
UAE's non-oil private sector economy recorded steep expansions in output, new orders alongside solid export demand growth in December. Christopher Pike / The National.

The non-oil private sectors of Saudi Arabia and the UAE, the Arab world's largest economies, ended 2017 on a high note with business conditions improving at the sharpest pace in 34 months in the UAE, according to the latest Purchasing Managers’ Index (PMI) survey.

The UAE, which has the most diversified economy among the GCC economic bloc, recorded steep expansions in output, new orders alongside solid export demand growth, which underpinned the most recent upturn. In terms of inflation, input cost pressures softened during December, while selling prices fell for the fourth month running.

The headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index rose to 57.7 in December from 57 level in November, the fastest pace of expansion since February 2015. The private sector in the country also posted the sharpest expansion in new business since January 2015. A reading above 50 suggests that the non-oil economy is growing, while a reading below 50 suggests a contraction. The survey is sponsored by Emirates NBD, Dubai’s biggest bank by assets, and produced by IHS Markit, a financial information services company.

“The UAE’s non-oil sector expanded sharply in the last two months of the year, largely due to a strong rise in output and new orders,” Khatija Haque, the head of the Middle East and North Africa research at Emirates NBD said. “It is likely that the introduction of VAT [value-added tax] in January has spurred activity and purchasing in the fourth quarter of 2017, which is in line with our expectations.”

Wage growth, however, has been relatively muted, “not just in December but for 2017 as a whole,” she noted.

The UAE’s non-oil economy, which slowed as a result of the slump in oil prices and subsequent government spending cuts, is showing signs of recovery as the government, particularly in Dubai, increases spending in the run up to the World Expo in 2020. An improvement in global economic conditions has also helped boost the country's tourism and real estate industries.

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The survey, which polls purchasing executives to give an overview of the non-oil private sector, found that the new orders growth in the UAE accelerated to a 35-month high in December. The rate of expansion was sharp overall and comfortably above the historical series average, with a rise in demand, particularly, an increasing inflow of new business from government sources.

After contracting in November, new export orders returned to expansion. “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,” according to the survey.

In Saudi Arabia, the PMI measure fell fractionally to 57.3 during December, from 57.5 in November.

Despite the rate of expansion softening, the latest figure signalled the pace of growth remained above the average registered throughout the year and the private sector non-oil economy enjoyed strong increases in both output and new orders.

“The December PMI survey continued to show a strong rate of expansion in December [in Saudi Arabia], and the data suggests that non-oil growth accelerated in the final quarter of 2017, as well as for the year as a whole compared to 2016,” Ms Haque said. “Nevertheless, we expect headline GDP growth to be close to zero in 2017 as substantial oil production cuts will offset the expansion in the non-oil sectors of the economy. We are more optimistic about growth prospects in 2018 however.”

In line with the trend seen since the survey began in 2009, inflows of new business received by Saudi Arabian non-oil private sector firms increased once again during December. New export orders expanded during December, extending the current sequence of growth to five months. The pace of expansion accelerated to its fastest since August.

The kingdom’s private sector also continued to hire additional staff in December, however, the rate of job creation remained slight overall and slower than the long-run average.