(MENAFN- Khaleej Times) Non-oil private sector in the UAE recorded in January its strongest growth in six months on the back of expansions in output and new work, Emirates NBD said on Sunday.
Khatija Haque, head of Mena Research at Emirates NBD, said the January Purchasing Managers' Index (PMI) data shows that output and new order growth remained strong, supported by improved foreign demand.
"The improvement in export demand last month is particularly welcome after a relatively soft 2016," said Haque.
With a good start to the year, the UAE non-oil private sector businesses remained optimistic towards the 12-month outlook for output.
Most analysts are upbeat about the outlook as they forecast a turnaround for the UAE's non-oil sector in the second half of 2017.
Atik Munshi, senior partner at Horwath Mak, said the high January PMI is indeed a good news for the market. Baring the month of July of last year, he said this has been a highest index for more than a year.
"Though this is a non-oil sector index, the positive impact of the higher oil prices during the last few months cannot be ruled out. This is expected to boost the market sentiment," he said.
"If oil prices remain in the proximity of $55 and such sentiment remains positive then UAE should expect a much better year compared to 2016. We shall have a more clear picture by the end of the first quarter of 2017," he added.
According to Minister of Economy Sultan bin Saeed Al Mansouri, the UAE's growth would be influenced mainly by modern infrastructure development, which will stimulate investment and business growth; improved legislative framework; enhanced administrative and economic environment in accordance with globally recognised standards; and strategic development projects.
Coface, a leader in trade credit management solutions, expects an upturn at 2.5 per cent GDP growth in 2017, due to diversified the UAE economy and Expo 2020 infrastructure investments.
National Bank of Kuwait in its latest report said resilient non-oil sector and a recovery in oil GDP are expected to drive overall growth of the UAE economy higher in 2017. After a flat growth in 2016, non-oil sector growth will improve to around five-six per cent on hospitality, transport and construction activity, it said.
The seasonally adjusted Emirates NBD UAE PMI, a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy, rose to 55.3 in January from 55.0 in December - the highest reading since July 2016.
"That signalled a notable improvement in the health of the sector, particularly in the context of the trends over 2016 (53.9) and the survey as a whole (54.5)," the bank said.
The increased new business has also prompted companies to raise their payroll numbers for the ninth straight month. On the price front, data highlighted divergent trends in January as firms continued to cut their prices charged in spite of a faster rise in cost burdens.
The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.
While output expanded at a sharp rate, new order growth accelerated to fastest since September 2015 as firms continued to cut their charges, despite stronger cost inflation.
The upward movement in the headline index was supported by a sharper increase in new work during January, with new business rising at the quickest rate in 16 months. Anecdotal evidence highlighted promotional activities, increased client demand and stronger underlying economic conditions as key factors boosting growth of new business inflows. Moreover, growth of new export orders quickened to a 14-month high.
Panellists scaled up output and input buying to cater for existing and expected new orders. In both cases rates of expansion eased since December, but remained sharp.
On the jobs front, a further increase in payroll numbers failed to alleviate pressures on operating capacity. The rate of backlog accumulation was slight overall as the vast majority of monitored firms (91 per cent) recorded no change in work-in-hand.
The survey data pointed to mounting cost pressures in the UAE's non-oil private sector. Sharp input price inflation was predominantly driven by a marked increase in purchasing prices as staff costs rose only slightly.
The survey report said output charges decreased for the fifteenth consecutive month in January, with a number of companies citing intense market competition. "However, the pace of reduction was slight overall and the weakest seen in five months."
Average lead times improved at a sharp rate that was broadly in line with that registered in the previous month. Those firms that were upbeat about the year ahead commented on expectations of further improvements in market conditions and strengthening client demand.
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Issac John Associate Business Editor of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.
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