UAE's non-oil economy expands at strongest pace in five months

Business activity in the UAE’s non-oil private sector expanded at the strongest pace in five months, as new orders increased and employment in the Arab world's second-largest economy in March grew at the fastest rate since 2016.

The seasonally adjusted S&P Global Purchasing Managers’ Index climbed to 55.9 in March from 54.3 in February, well above the neutral 50 mark that separates growth from contraction.

The latest reading signalled a “sharp and quicker improvement” in the health of the sector.

The increase in the index was the largest month-on-month uplift since October 2021, with all five sub-components providing a “positive directional influence”, according to the survey.

"The latest PMI reading … reflected concerted efforts by non-oil companies to boost their capacity levels in the face of strengthening demand conditions,” said David Owen, senior economist at S&P Global Market Intelligence.

“The sub-indices for employment and stocks of purchases rose to 80 and 60-month highs respectively, signalling notable uplifts in staffing numbers and inventories in the latest survey period."

The rise in the employment sub-index signalled a solid boost to the workforce and reflects the recent trend of improving demand conditions as well as new business that led to a “need for greater labour capacity”.

Underlying the expansion of the Emirates' private sector non-oil economy in March was the robust increase in new order intakes, with the rate of growth accelerating to a five-month high. It was, however, below the post-Covid peak seen in late 2021, Mr Owen said.

The rate of new order growth highlighted stronger market demand and increased tourism. The upturn was predominantly driven by domestic sales, while the overall export business was broadly stable in March following a three-month sequence of declines.

The increase in new orders led companies to increase their output, with the rate of expansion broadly unchanged from February. However, with demand improving and some of the businesses surveyed reporting delays in the recruitment, outstanding business volumes rose to the greatest extent since October last year, the survey said.

After growing 7.6 per cent last year, the highest in 11 years, the UAE economy is expected to expand 3.9 per cent this year and 4.3 per cent in 2024, the UAE Central Bank said in March.

Non-oil gross domestic product and oil output were estimated to have grown 6.6 per cent and 10.1 per cent, respectively, last year.

The robust economic growth last year in non-oil GDP was driven by the property, construction, manufacturing and travel and tourism sectors, which are expected to continue driving the economy this year.

Non-oil GDP is expected to accelerate by 4.2 per cent in 2023 and 4.6 per cent in 2024, according to the Central Bank. Oil GDP is forecast to grow 3 per cent in 2023 and 3.5 per cent next year.

First Abu Dhabi Bank forecasts the UAE's hydrocarbon and non-hydrocarbon real GDP growth at 5.4 per cent and 4.7 per cent, respectively, this year.

The UAE, where non-oil foreign trade hit a record Dh2.23 trillion ($607.1 billion) last year, aims to double the size of its economy by 2030.

The country is working towards signing 26 comprehensive economic partnership agreements to attract investment and diversify its economic base.

In the latest PMI survey, non-oil businesses signalled improved inventories build-up in March as data indicated the fastest expansion in stocks of raw materials and semi-finished products in five years. The upscaling of inventory levels partly reflected efforts to take advantage of a mild cost environment in line with modest inflation.

The outlook for future activity in the country's non-oil economy also strengthened to a five-month high in March and was "aligned with the average sentiment level seen since Covid-19".

Companies surveyed were generally optimistic about continued market growth and increased opportunities over the next 12 months.

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