UAE’s non-oil sector expanded sharply in Q4 2017 with the introduction of Value Added Tax (VAT)
December data signalled a strong end to the year for the UAE’s non-oil private sector, with business conditions improving at the sharpest pace in 34 months. Steep expansions in output, new orders alongside solid export demand growth underpinned the most recent upturn. In terms of inflation, input cost pressures softened during December, whilst selling prices fell for the fourth month running.
According to a recent IMF report, the UAE’s gross domestic product is expected to expand 3.4 percent in 2018 from 1.3 percent last year, largely driven by recovering oil price.
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The survey contains original data collected from a monthly survey of business conditions in the UAE non-oil private sector.
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Commenting on the UAE PMI® survey, Khatija Haque, Head of MENA Research at Emirates NBD, said:
“The UAE’s non-oil sector 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. Nevertheless, employment and wage growth has been relatively muted, not just in December but for 2017 as a whole.”
- Headline PMI rises to 57.7 during December, from 57.0
- Sharpest expansion in new business since January 2015
- Output prices continue to fall
The headline seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index™ (PMI®) – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – rose from 57.0 to 57.7 in December, thereby signalling a sharp improvement in business conditions in the non-oil private sector. Furthermore, the pace of expansion was the fastest since February 2015.
Non-oil private sector firms in the UAE reported sharp growth in output during the latest survey period. The pace of expansion remained strong in the context of historical data, despite easing since from the 33-month high registered in November.
New order growth accelerated to a 35-month high December. The rate of expansion was sharp overall and comfortably above the historical series average. Panel members frequently commented on a strong level of underlying demand, whilst others reported an increasing inflow of new business from government sources.
After contracting in November, new export orders returned to expansion during the latest survey period. Moreover, the rate of growth was solid overall and the strongest recorded in nine months. According to anecdotal evidence, demand from neighbouring GCC countries picked up in December.
In response to rising output requirements, firms continued to hire additional staff in the non-oil private sector. The latest data thereby extended the current sequence of job creation to 20 months. That said, the rate of hiring remained subdued in the context of historical data.
On the price front, input prices continued to increase during December, in line with the trend seen since June. That said, the rate of inflation eased to a three-month low.
Contrary to the trend seen for input prices, output charges fell in December. Companies reduced selling prices to stimulate client demand, according to panel member reports. That said, the rate of price discounting was only modest overall.
Buying activity growth remained sharp during December’s survey period. Companies operating in the UAE’s non-oil private sector increased their purchasing volumes in anticipation of an upturn in output requirements.