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Thu 4 Jan 2018 09:57 AM

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Pre-VAT buying pushes UAE private sector to near three-year high

Emirates NBD's purchase managers' index shows the sharpest expansion in new business since January 2015

Pre-VAT buying pushes UAE private sector to near three-year high
In response to new orders, firms increased buying activity, continuing a trend from November

A spate of buying activity just before value added tax on goods (VAT) was applied on January 1 saw the UAE’s non-oil private sector capping 2017 with the sharpest pace of growth in almost three years, according to Emirates NBD’s quarterly purchase managers index (PMI).

The PMI surveys 400 purchasing executives across the UAE’s non-oil private 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.

“The UAE’s non-oil sector [private] expanded sharply in the last two months of the year, largely due to a strong rise in output and new orders.  It is likely that the introduction of VAT in January has spurred activity and purchasing in Q4 2017, which is in line with our expectations,” said Khatija Haque, head of MENA Research at Emirates NBD.

Headline PMI has grown to 57.7 from 57 in November, and from 55.9 in October. Growth in output eased from a 33 month high in November, but new orders posted their best numbers in 35 months. New export orders, after contracting in November, also grew to their highest in nine months bolstered by demand from countries in the GCC.

In response to new orders, firms increased buying activity, continuing a trend from November when over 42 percent of respondents noted increasing quantities of purchases.

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, according to the index.

Employment numbers and wages in the sector also failed to register any significant activity, remaining “relatively muted, not just in December but in 2017 as a whole,” added Haque.