Today's Edition
MOHAMMAD GHAZAL (ABU DHABI)
The UAE's non-oil economy closed 2023 with an impressive expansion, solidifying its position with the most robust quarterly upturn since 2019, driven by substantial increases in new business activities and enhanced sales pipelines, according to the S&P Global UAE Purchasing Managers' Index (PMI).
Projections for future activities have also shown remarkable strength, standing out as some of the most robust recorded since early 2020.
The seasonally adjusted PMI – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – rose from 57.0 in November to 57.4 in December, marking the second-highest reading since June 2019.
"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. 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," David Owen, Senior Economist at S&P Global Marketm Intelligence, said on the data.
The UAE's gross domestic product grew 3.7% in the first half of the year, driven by a surge in non-oil sector that outperformed overall growth. Non-oil growth surged 5.9% in the first six months of 2023.
The UAE's GDP in 2022 at constant prices totalled Dh1.62 trillion, achieving a positive growth of 7.9%, while totalling Dh1.86 trillion at current prices, an increase of more than Dh337 billion compared to 2021, achieving a growth of 22.1%.
The World Bank projected a 3.4% growth in the UAE's GDP in 2023, with expectations of further increase to 3.7% in 2024.
According to the recently published World Bank Gulf Economic Update (GEU) report, the Bank anticipated the UAE's non-oil GDP growth to reach 4.5% in 2023, driven by strong performances in the tourism, real estate, construction, transportation, and manufacturing sectors, along with increased capital expenditure.
As per the index, the economic trends in the UAE's non-oil sectors remained exceptionally strong at the end of 2023, as the PMI posted its second-best reading in four-and-a-half years driven by a sharp upturn in new business intakes that drove a marked expansion in output levels, with surveyed companies noting increased order book volumes and improved sales pipelines.
Similarly, projections for future activity were among the strongest recorded since early-2020.
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 reporting monthly expansion.
The pace of growth was unchanged from November, and was the joint-strongest for six months. The rise in output was somewhat supported by a PMI of up to 57.4, second-highest since mid-2019.
The index indicated that 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, the index showed.
Further, substantial rises in output and new orders, and purchase price inflation softened to 11-month low, according to the report.
Purchasing activity continued to rise at a sharp pace in response to positive demand trends, although some businesses opted to streamline stocks amid cost considerations. Subsequently, after reaching a near six-year record, the rate of inventory growth slowed in December to a three-month low.
The inflation picture across the non-oil sector was partly helped by an alleviation of purchasing growth, according to the latest survey data, as some vendors cut material costs after negotiations with clients.
Purchase prices rose to the least extent since January, bringing overall cost pressures down to a five-month low. Selling prices were likewise reduced, as companies sought to offer discounts to undercut competitors.
The overall decrease was the fastest since July, albeit only modest, and partly offset by the pass-through of rising input costs at some firms.
Output expectations for the next 12 months strengthened in December, and were among the highest recorded in the past four years, with survey comments suggesting that optimism was largely based on robust sales pipelines. With this in mind, firms expanded their staffing levels, with the pace of job creation equalling the series long-run trend.
"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 suggest that firms are still keeping profit margins low as markets become more crowded," Owen added.
