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Business Activities in the UAE Reach 18 Month High

UAE : 03 February 2011

With orders pouring in and output climbing, activities in the UAE private sector climbed to a new 18-month high for the month of January, supporting recovery across the economy according to a recent purchasing manager survey.

The HSBC PMI (purchasing managers’ index) for the UAE is done to measure the performance levels of both the services and manufacturing sector within the OPEC member nation. In January the PMI reached 54.2 points, which is the highest level seen since August 2009 when the series started.

In December the PMI sat at 53.0 points, well above the 50-point threshold that marks the difference between contraction and growth.

Simon Williams is at the HSBC Bank’s Dubai division and operates as the chief economist for the Mena region. He noted that this data puts the UAE decisively in recovery territory.

Williams noted that although the gains are modest, the numbers clearly show that production is on the rise, new orders are flowing in and hiring is increasing.

The growth of output hit a series high in January as well, reaching 58.0 points, up nearly two points from December’s 56.1-point level. This move is a result of rising activities in the non-hydrocarbon private sector of the UAE and was deduced from the survey responses of 400 private businesses.

About 29 percent of companies surveyed had increased output in January, due to an improved economic climate and more business inflows.

Another high was reached in the new orders index, this one over a 14-month period, when the index hit 56.1 points. According to survey respondents, strengthening market conditions and rising domestic demand are the cause.

When discussing the possibility of inflation, Williams noted that although some increase in January output prices could be seen, the steady pace of economic recovery and the room left within the economy make it highly unlikely that these figures signal a stark increase in inflation.

A slowdown occurred in the 2010 rate of consumer price inflation for the UAE, which landed at 0.9 percent. This is a record low for the Emirates not seen since before the Gulf War began in 1990. The slower recovering in the UAE is blamed for the most part of debt woes within Dubai.

November saw inflation remain flat for the month as the cost of transportation and housing fell and the price of goods and services, as well as food, climbed.

Food prices, seen rapidly rising across the globe, reached a peak in December. However, the Gulf oil producing nations are not likely to see anything like the massive protests now occurring in Egypt against President Hosni Mubarak and those that toppled the government in Tunisia.

PMI results also indicated that job creation is on the rise, mainly due to enhanced business conditions and expanding companies, although the figures are still below the series’ average for the last twelve months.

Private industry noted that inflation in outputs rose slightly higher since December as compensation for the rising cost of inputs. Output inflation reached a high for the series in January, hitting 52.2 percent.

Input prices are also on the rise, according to the survey this is mainly due to the climbing cost of raw materials and fuel. When Reuters polled a group of analysts their forecasted 2011 growth rate for the UAE economy rose to 3.6 percent. That is a healthy increase from the 2.3 rate of 2010, which was when government-owned Dubai World garnered agreement on a debt restructuring plan worth $25 billion.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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