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Higher Output in UAE Non Oil Sector as Confidence Up in Dubai and Kuwaiti Budget Reports 9 Percent Spending Hike

Middle East : 09 November 2012

Private Sector Output Higher in the UAE

The non oil private sector of the UAE recorded a steady score of 53.8 in October’s PMI, unchanged from the score reported in September. Operating conditions also improved, indicating greater levels of optimism and output in spite of expanding new orders, according to the index compiled by Markit Economics and HSBC Holdings.

Output within the non-oil private sector of the UAE went up in the month of October, with a growth rate similar to levels seen in September. Higher production was a result of increasing new orders. Some evidence suggested that new orders were driven by higher demands, especially within international markets.

HSBC’s chief economist for the MENA region, Simon Williams, noted that this recent reading reports positive performance for the UAE’s economy, in spite of a negative global economic climate. Stronger new order figures and rising employment are especially encouraging, stated Williams, who suspects that Dubai is outpacing Abu Dhabi, although a breakdown of the data was unavailable.

Backlogs were up slightly for October, after a modest drop in September. Several panelists credit the increase in new business for the greater levels of backlog. Employment levels were also up in non-oil private sector companies for the month of October, with a faster rate of job creation that surpassed September’s figures and reached a three-month high.

Purchasing activities also rose, climbing to the quickest rate seen since June. Many companies credited increased production requirements. Stocking of purchasing went up last month, as inventory accumulation rates increased slightly over September’s numbers, remaining at a relatively modest level.

Total new orders were higher, and new export orders grew at the fastest rate reported since May of last year. Emirates NBD noted that higher external demand likely came from within the surrounding GCC region.

Confidence Is Higher in Dubai Businesses

Dubai’s Business Confidence Index climbed to higher than 122 points for Q3 2012, posting an increase of greater than 15 percent over the second quarter and 6.5 percent higher than Q3 2011, according to the most recent data from the DED.

Overall, business is expected to improve during the fourth quarter of this year, as 95 percent of survey respondents expect stability or improvements.

Optimism remained highest with companies in the trading, services and manufacturing sectors, but nearly 68 percent of all businesses surveyed expect stronger results in Q4 2012 and 22 percent forecast stability.

The Business Confidence Index for Dubai came in at 122 points, reflecting an optimistic business climate as a result of festive seasons occurring and expected, as well as expanding inbound tourism.

Fourth quarter forecasts include increased sales and expansions, with 63 percent of respondents reporting plans to boost purchase orders in the final quarter of 2012. Companies in the manufacturing sector should experience the highest sales volume, with 78 percent of respondents in that sector forecasting sales increases in the fourth quarter, significantly higher than the 67 percent reported in the third quarter.

SMEs reported greater optimism in terms of sales, volume, revenue and profits, compared to larger firms. Exporters also have more optimism and expectations for every facet of business, compared to companies with a domestic focus.

The Department of Economic Development’s director-general, Sami Al Qamzi, noted that business is “in full swing” in Dubai, with inevitable growth. Positive performance and growth are showing up in key economic sectors of Dubai, as indicated by the overall business climate.

Al Qamzi added that implemented measures have supported investor confidence in Dubai and facilitated activity, creating a significant impact as displayed in this latest report.

Economist Dr Abdul Hameed Radwan noted that although the current conditions indicate genuine optimism and growth for Dubai, businesses should have expect a conservative frame within this surge.

The UAE has an open economy with exposure to the economic conditions of Europe, yet Dubai’s incentives and policies could realize benefits from global economic conditions and regional political tension.

Dr Radwan noted that the long term view should be void of excessive optimism and avoid economic bubbles.

Survey results report the highest levels of optimism in the construction sector, with new projects expected in the local and regional areas.

Kuwaiti Budget Includes 9 Percent More Spending

Revenues in Kuwait are projected to increase by 4 percent, reaching KD 13.9 billion for the 2012-2013 fiscal year. After a delay in approval, the Amir has decreed approval for the 2012-2013 budget law, which includes planned spending of KD 21.2 billion. This spending should support the national economy still battling to gain momentum. Actual spending generally comes in below target and the 12-month delay has created a cloud of uncertainty over this budget. In any case, a substantial budget surplus is likely.

Current spending will surge in the new budget, moving up 12 percent to reach KD 18.6 billion. Over half of this increase will be spent on power generation. The balance of this increase occurs in civilian salary and wage increases, which jump up 16 percent. About half of this can be found in the Ministry of Education. This budgeted increase is lower than the previous year’s figure of 24 percent. It should still support growth in consumer spending levels, which has grown into a prominent position within Kuwait’s non-oil economy. Salaries and wages account for about 24 percent of total budgeted spending, a slight increase from years past.

Capital spending levels have dropped by 6 percent in the 2012-2013 year, reaching KD 2.6bn. Kuwait has spent less money on infrastructure over the last three years and project execution in the nation has slowed due to technical challenges, political conditions and bureaucracy.

Some feel that the late approval and more modest investment spending figures are in line with the limited time left in this fiscal year, as opposed to indicating low levels of ambition. Others state that lower levels of investment in the power sector are a result of the current end-of-project cycle. When those conditions are excluded, capital spending is budgeted to rise by about 10 percent.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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