UAE non-oil sector posts strong growth ahead of VAT

Emirates NBD's purchase managers' index registers a three month high but indicates household consumption increases might be temporary
A sharp increase in buying activity has the UAE’s non-oil private sector poised for its fastest rate of growth in the fourth quarter of 2017, according to Emirates NBD’s quarterly purchase managers index (PMI).
By Shayan Shakeel
Tue 05 Dec 2017 09:51 AM

A sharp increase in buying activity has the UAE’s non-oil private sector poised for its fastest rate of growth in the fourth quarter of 2017, according to Emirates NBD’s quarterly purchase managers index (PMI).

The PMI surveys 400 purchasing executives across the UAE’s non-oil sector, aggregating their responses on new business, orders, employment growth, inventory, and delivery times into an index that reflects the strength of manufacturing and production activity in the economy.

Headline PMI grew to 57 from 55.9 in November, bolstered by a swell in new orders and production output. Both measures that account for over half of the index’s weight.

In response to new orders, firms have increased buying activity at the fastest pace in the index’s history. Over 42 percent of respondents noted increasing quantities of purchases.

“The PMI reading for November confirms our view that the UAE’s non-oil sector will likely see strong growth in the fourth quarter of this year, as both households and business will likely boost purchases before VAT comes into effect at the start of next year,” says Khatija Haque, Head of MENA Research at Emirates NBD. 

However, despite increasing material prices affecting operating costs, new business growth continues to be spurred by discounts on the prices of goods to stimulate demand, albeit at a slower rate than in the last survey in August.

Most new orders pouring in also signify domestic demand and firms have noted increased competition for new work in key export markets.

Optimism and confidence remained low, despite the impending impact of Expo 2020 Dubai and continue to manifest in muted job creation. Coupled with low wage growth, Haque estimates, “any boost to household consumption this quarter will likely prove temporary.”

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