The UAE and Saudi Arabia experienced strong non-oil private sector growth in December, according to survey data from Emirates NBD.
Improved sentiment in both countries comes amid a rise in oil prices following agreed output cuts by both Opec and non-Opec producers, suggesting that businesses believe that the negative impacts of fiscal austerity may be tailing off.
Emirates NBD’s purchasing managers’ index (PMI) for the UAE rose to 55 in December from 54.2 in November, the bank announced yesterday.
A reading above 50 indicates that the non-oil economy is growing, while a reading below 50 suggests that it is contracting. Khatija Haque, Emirates NBD’s head of Mena research, said that the rising PMI score indicated "a solid expansion in the non-oil private sector" during the past quarter.
UAE-based business leaders reported rising output in December as orders increased, amid a return to growth of new export business.
Ms Haque stressed, however, that firms had offered significant discounts and promotions to secure new orders, with higher staff costs and rising inflation putting pressure on margins.
The UAE’s PMI score for 2016 averaged 53.9, compared with 56 in 2015, indicating slower growth during the past year.
Saudi Arabia’s PMI score, meanwhile, rose to 63.3 in December from 60.3 in November. Survey respondents noted an increase in activities in the country’s construction sector, following moves by the government to pay outstanding invoices.
Output growth in the kingdom hit a four-month high last month, with nearly a third of firms reporting higher output during December.
"Improving demand was a key driver for output and new order growth in Saudi Arabia in December, which is very encouraging as we look forward to 2017," said Ms Haque.
But while firms have increased purchases and accumulated inventories in anticipation of future orders, employment growth in the sector remains marginal, she said.
Once again businesses face squeezed margins in a tight economic climate, owing to higher input costs and lower output costs.
"Looking ahead, we expect non-oil sectors in the UAE and Saudi Arabia to experience a slow recovery over the course of this year," said Jason Tuvey, a Middle East economist at Capital Economics in London.
"Both countries have made good progress with fiscal consolidation and now have scope to ease austerity.
"Indeed, Saudi Arabia’s recent budget suggests that austerity will take a breather this year."
Rising costs create bleak Egyptian climate
Private sector business sentiment remained severely depressed in Egypt in December, according to Emirates NBD data, with sharp rises in material costs weighing on output following the country’s currency devaluation in November.
Egypt’s non-oil PMI score stood at 42.8 in December, the country’s 13th consecutive negative rating, although an improvement on November’s score of 41.8. December’s ranking rounded off the country’s worst quarter on average since data collection began five years ago.
Sharp inflation resulted in purchasing costs rising at a near-record pace, restricting output, according to Emirates NBD, with the resulting higher prices hurting demand.
The country’s non-oil private sector employment fell for the 19th consecutive month.
Egypt free floated its currency in November to qualify for IMF loans, causing it to lose about half of its value against the dollar.
"Although the process will not be immediate, a weaker Egyptian pound following November’s devaluation will eventually help boost export growth, which will clearly be welcome as the rest of December’s survey continues to point to weak domestic demand," said Emirates NBD’s senior economist Jean-Paul Pigat.
Muscat bourse recovers on buying support
Shares on the Muscat bourse recovered amid better investor sentiment on Wednesday. The MSM30 Index advanced by 0.80 per cent to close at 5,510.18 points. The MSM Sharia Index closed at 801.51 points