UAE's Non-Oil Economy Experiences Rapid Growth

In the UAE's non-oil private sector, business activity experienced its most significant growth in five months, driven by a surge in new orders and the fastest employment rate increase since 2016 in the Arab world's second-largest economy.

The S&P Global Purchasing Managers' Index (PMI), adjusted for seasonality, rose to 55.9 in March, up from 54.3 in February, considerably above the neutral 50-point mark that distinguishes expansion from contraction.

This latest reading indicates a "marked and accelerated enhancement" in the sector's condition, marking the most substantial month-on-month improvement since October 2021. The survey credits all five sub-components for their "favorable directional impact."

David Owen, Senior Economist at S&P Global Market Intelligence, noted that the recent PMI reading reflected non-oil companies' concerted efforts to increase their capacity in response to growing demand. Both employment and stocks of purchases sub-indices reached 80 and 60-month highs, respectively, indicating significant increases in staffing and inventory levels during the survey period.

The employment sub-index's growth signifies a substantial workforce boost, reflecting the recent trend of improving demand conditions and new business, resulting in a "higher requirement for labor capacity."

A key factor underlying the expansion of the UAE's private sector non-oil economy in March was the substantial growth in new order intakes, which accelerated to a five-month high, although remaining below the post-Covid peak observed in late 2021, according to Owen.

Increased market demand and a boost in tourism led to the growth in new orders, primarily driven by domestic sales, while export business remained generally stable in March after three consecutive months of decline.

As new orders increased, companies expanded their output at a rate similar to February. However, with demand rising and some businesses reporting recruitment delays, outstanding business volumes reached their highest level since October of the previous year, the survey stated.

After achieving 7.6% growth last year, its highest in 11 years, the UAE economy is projected to expand by 3.9% in 2023 and 4.3% in 2024, according to the UAE Central Bank's March statement. Last year, non-oil GDP and oil output were estimated to have grown by 6.6% and 10.1%, respectively.

Sectors such as property, construction, manufacturing, and travel and tourism were the primary drivers of robust economic growth in non-oil GDP last year, and they are expected to continue contributing to the economy in the coming years.

The Central Bank predicts non-oil GDP growth of 4.2% in 2023 and 4.6% in 2024, while oil GDP is anticipated to increase by 3% in 2023 and 3.5% in 2024. First Abu Dhabi Bank forecasts the UAE's hydrocarbon and non-hydrocarbon real GDP growth at 5.4% and 4.7%, respectively, for this year.

The UAE, which saw a record non-oil foreign trade of Dh2.23 trillion ($607.1 billion) last year, aims to double its economy's size by 2030. The nation is working on signing 26 comprehensive economic partnership agreements to attract investment and diversify its economic base.

The latest PMI survey revealed that non-oil businesses reported accelerated inventory expansion in March, as data showed the quickest growth in raw material and semi-finished product stocks in five years. Inventory level upscaling partially resulted from efforts to capitalize on a relatively mild cost environment amid modest inflation.

In March, the outlook for future activity in the non-oil economy also reached a five-month high and matched the "average sentiment level observed since Covid-19." Surveyed companies expressed general optimism about sustained growth over the next 12 months.