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Thu 3 Mar 2011 10:18 AM

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UAE business conditions at record high on orders, output

HSBC's UAE Purchasing Managers' Index rises to its highest level since the series began in Aug 2009

UAE business conditions at record high on orders, output
RECORD RISE: Faster increases in new orders and employment supports rise in PMI (Getty Images)
UAE business conditions at record high on orders, output
Dubai skyline, Dubai buildings, Dubai real estate, Dubai property, Dubai economy

Private sector business activity in the UAE hit a series record high in February as new orders and output rose sharply, a purchasing managers' survey showed on Thursday.

The HSBC UAE Purchasing Managers' Index (PMI), which measures the performance of the OPEC member's manufacturing and services sectors, rose to 54.3 points in February, its highest level since the series began in August 2009.

It stood at 54.2 points in January, holding above the 50 point mark that separates growth from contraction.

"The latest readings strengthen our view of the UAE that recovery is gaining traction and beginning to build speed," said Simon Williams, chief economist for MENA at HSBC Bank in Dubai.

"The fact that new orders and current output are both rising is particularly encouraging. Higher output prices also suggest a more resilient consumer, although real estate excesses, low bank credit and a slack labour market will keep the headline inflation rate low this year."

The new orders index rose to 57.6 points in February, up from 56.1 points in the previous month, which panelists linked to improving economic conditions and company expansions, the survey of 400 private sector firms showed.

Sentiment has improved since state-owned Dubai World sealed a deal to restructure $25bn in debt last September.

As a result, interbank offered rates have come down, but banks are still hesitant to lend with Dubai and its state-linked firms facing some $30bn in debt repayments over the next two years and protests raging in the Arab world.

Overall input and output prices both climbed to a series record high, driven by higher fuel and raw material prices.

UAE consumer inflation eased to 1.6 percent on an annual basis in January as an unexpected drop in food costs pushed prices into a second monthly decline in a row.

Popular unrest over entrenched poverty and high unemployment has been sweeping through Arab countries over the past two months, unseating autocratic leaders in Tunisia and Egypt and threatening regimes in Bahrain, Libya and Oman.

"It's too soon to judge what impact regional unrest is having on growth prospects. Next month's PMIs though should give us a clearer steer," Williams said.

Analysts polled by Reuters forecast UAE economic growth at 3.6 percent this year, after an estimated 2.3 percent in 2010.

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