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Wed 3 Nov 2010 10:23 AM

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UAE's private sector business activity hits 15-month high in Oct

HSBC's Saudi Purchasing Managers' Index also shows rise in October from September

UAE's private sector business activity hits 15-month high in Oct
(Getty Images)

Private
sector business activity in the UAE hit a 15-month high in October and the
outlook improved further with companies hiring new staff, a purchasing
managers' survey showed on Wednesday.

The HSBC UAE
Purchasing Managers' Index (PMI), which measures the performance of the OPEC
member's manufacturing and services sectors, rose to 53.8 points in October,
its highest level since the series began, holding above the 50 point mark that
separates growth from contraction. It stood at 52.6 in September.

"This
is encouraging reading that supports our view that the UAE has shifted into
recovery mode," said Simon Williams, chief economist for MENA at HSBC Bank
in Dubai.

"I don't
expect momentum in the economy to build particularly quickly, and there are
clear signs that the amount of spare capacity in the economy is worryingly
high," he said.

In a Reuters
poll, analysts raised their forecasts for UAE economic growth this year to 2.4
percent after state-owned Dubai World sealed a $24.9bn debt restructuring deal,
easing market concerns.

The output
sub-index for UAE non-oil private sector firms hit a record high of 57.9 points
in October and it booked the fastest rise since the survey began in Aug. 2009,
the PMI survey showed.

The new
orders index rose to 55.6 points, an 11-month high, which panelists linked to
higher order levels and further backlog depletion, the survey of 400 private sector
firms showed.

The data
indicated that domestic demand was firmer than external demand, as new export
order growth moderated slightly from September.

Employment
and buying activity both rose at moderate rates although job creation slowed on
the month.

Companies
faced rising cost pressure as input prices continued to climb in October,
largely driven by rising raw material costs, and wage inflation accelerated
slightly, the survey showed.

UAE private
sector companies passed on part of the higher cost burden to customers,
although output price inflation was only slight.

Business activity in Saudi Arabia's non-oil private sector grew at its
fastest pace in three months in October, indicating the biggest Arab economy is
gaining momentum.

The SABB HSBC Saudi Arabia Purchasing Managers' Index, which measures the Kingdom's
manufacturing and services sectors, rose to 59.9 in October from 58.5 in
September, its highest level since July.

"It's a very positive reading. The strong gains in new orders suggest
that the growth in output is likely to carry on building momentum through the
fourth quarter and into next year," Williams said.

The composite index, which is seasonally adjusted, peaked at 61.4 points in
June. The survey was launched in August 2009.

The private sector of the world's biggest oil producer saw solid business
growth in October as new orders rose at the fastest rate since July, despite a
slowdown in new export business to the lowest level in the survey's history.

Companies' purchasing and wage costs accelerated in October, forcing
companies to raise the prices they charged, according to the survey, which was
based on more than 400 private firms.

Consumer inflation in the desert kingdom, at 5.9 percent in September,
remains a worry. It came down from an 18-month peak in September but is still
the highest in the Gulf.

"The results add to my worries over inflation. The survey shows input
costs rising and in such a strong market firms will be able to add to prices to
protect margins," Williams said.

The survey also showed Saudi employment climbed to a four-month high in October,
indicating a robust rate of job creation across the non-oil private sector.

Unemployment stands at around 10 percent in Saudi Arabia and the government
is trying to spur private sector growth and create more jobs for its growing
population of more than 18 million.

 

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