The UAE started 2024 on a strong footing with the Purchasing Managers’ Index (PMI), a key indicator designed to give an accurate overview of operating conditions in the non-oil economy, posting its second-best reading in four-and-a-half years.
Amid upbeat growth projections made by the Central Bank of the UAE and various other international institutions, economic trends remained exceptionally strong at the end of 2023.
S&P Global UAE PMI ticked up from 57.0 in November to 57.4 in December, the second-highest reading since June 2019 as a sharp upturn in new business intakes drove a marked expansion in output levels. The PMI report shows increased order book volumes and improved sales pipelines. “Similarly, projections for future activity were among the strongest recorded since early-2020.”
“The UAE non-oil economy closed the year with another impressive expansion, confirming the strongest quarterly upturn since Q2 2019 and putting the sector in a favourable position for 2024,” said David Owen, senior economist at S&P Global Market Intelligence. “Not only did businesses enjoy another substantial increase in output, but sentiment data suggested that they expect this growth to continue, with year-ahead expectations among the highest seen since prior to the Covid-19 pandemic.”
Supporting this optimism was a softening of price pressures, as purchasing costs rose to the least degree in almost a year. With wage pressures also remaining mild, firms were often willing to offer promotions and run down prices to remain competitive. “While the drop in charges – the quickest since July – may support additional sales growth in early-2024, the findings suggests that firms are still keeping profit margins low as markets become more crowded,” added Owen.
Indeed, the PMI signalled a robust improvement in the health of the non-oil private sector, driven by considerable uplifts in output and new orders. “Notably, the latest rise in new order volumes confirmed the best quarterly sales performance in four-and-a-half years. Strong domestic market conditions supported improvements in new work and sales pipelines, according to panel members, despite evidence of slowing momentum from external markets,” said the survey report.
While optimism was largely based on robust sales pipelines, firms expanded their staffing levels, with the pace of job creation equalling the series long-run trend. “Combined with ongoing project work and marketing efforts, the upturn in sales drove a substantial increase in non-oil activity during December, with over a quarter of surveyed firms seeing a monthly expansion. Indeed, the pace of growth was unchanged from November and the joint-strongest for six months,” said the report.
The upward revision of the UAE non-oil growth forecast by Central Bank of the UAE to 5.7 per cent, compared to its previous projection of 4.3 per cent, highlighted the continued robustness of private sector economic activity.
Ehsan Khoman, MUFG head of research – Commodities, who holds a bullish outlook for the UAE, said he expects the non-oil activity to remain strong. “The economy’s well-established infrastructure does not call for a surge in capital outlays of the same quantum that will boost growth in Saudi Arabia. With services exports a driver of growth, there is also a greater exposure to global weakness, particularly with demand for travel and tourism now above pre-Covid levels.”
Economists and analysts believe that the growth prospects in the UAE’s non-oil GDP continue to gain momentum, supported by increased business confidence, a spate of government reforms and expansion in household spending. The Organisation of the Petroleum Exporting Countries said in its Oil Market Report that the second-largest Arab economy remains robust, with constant contributions from the non-oil sector, especially from tourism, leisure, and real estate. The UAE’s tourism sector, which accounts for more than 16 per cent of the country’s GDP, continued to rebound and even exceeded the pre-pandemic level in terms of the number of visitors. The number of visitors to Dubai rose by 19 per cent year-on-year in the first half of 2023.