UAE non-oil businesses grew by their fastest rate in more than a year and a half in March, adding to signs throughout the first quarter that the economy is starting to recover from a low oil price-induced slump.
According to the Emirates NBD/ IHS Markit Purchasing Managers Index published on Tuesday, which measures the economic confidence of business managers in the manufacturing and services industries, non-oil PMI growth climbed to a 19-month high of 56.2 in March, from 56.0 in February.
A figure above 50 indicates that businesses in the country are expanding, while a figure below 50 signals a contraction.
The index, collected from a monthly survey of business conditions in the UAE non-oil private sector, had fallen to a low of 53.9 last year owing to the effect of low oil prices on the UAE economy.
The rate of business expansion last month accelerated to the sharpest in more than two years, something managers said was fuelled by improved market demand, a general improvement in economic conditions and a growth in the number of new projects
"The latest PMI survey for the UAE points to encouraging growth in the non-oil economy through the first quarter of 2017. What was particularly notable in this report was the degree of optimism among local firms about the potential for further improvements in client demand, which was evident in a strong rise in purchasing activity," said Tim Fox, the head of research and chief economist at Emirates NBD.
Mr Fox said that an increase in the amount of construction activity and promotional activities were behind the rise in new orders.
Firms reported that they had recruited staff to meet the increasing demand. But the rate of job creation was only modest – which meant that the rate of backlog accumulation edged up to a six-month high. Companies reported that higher demand had contributed to rising work outstanding.
An increase in new orders also meant that firms scaled up buying levels, pushing up the rate of inventory accumulation to a survey-record high as firms anticipated even more demand in future.
According to the survey, higher demand for raw materials meant that prices rose. However, intense market competition meant that many firms felt unable to pass on the cost hikes to customers as output prices remained stable.
The rise in business optimism in the UAE was also reflected in neighbouring Saudi Arabia, where although the survey reported that non-oil PMI growth slipped from February’s 18-month high of 57.0 to 56.4 in March, the PMI average for the first quarter of 2017 (56.7) was still the highest in one-and-a-half years.
But in Egypt, which is still suffering the effects of the Arab Spring and where last year the government was forced to devalue the currency in an attempt to attract fresh capital into the country and end a hard currency shortage, the PMI survey painted a much more gloomy picture.
According to the survey, operating conditions in the non-oil private sector edged down from 46.7 in February to 45.9 in March, pointing to a marked worsening in business conditions.
Last month the UAE Minister of Economy said he expected GDP growth to reach 3.5 to 4 per cent this year, boosted by higher oil prices and infrastructure ­projects under way ahead of Expo 2020.

Source: The National