UAE economy on stable but tricky expansion track

The HSBC Purchasing Managers' Index (PMI) for the United Arab Emirates (UAE) remained in an expansive mode in August, albeit the gauge was little changed month-on-month, banking giant HSBC said Tuesday. "The UAE's headline PMI printed at just over 53 points in August -- little changed month-on-month and comfortably in expansionary territory as 50 means neutral or no change," said Simon Williams, chief economist at HSBC Middle East in Dubai. The index measures the performance of the manufacturing and services sectors and is regarded as a pulse of the non-oil private sector. "Output, orders and employment all continued to rise, while there was further stock accumulation as companies retained positive forecasts for growth," said Williams. "Total new orders rose at the sharpest rate for three months in August amid reports of improved market conditions, firm demand and higher sales efforts," he added. Nevertheless, Williams added that the UAE's economic development must be regarded critically. "Firstly, though positive, we view the August reading with some caution. In part this reflects the difficulty of adjusting the results correctly for the impact of both the hot summer months and the holy month of Ramadan (the Islamic month of fasting, which last from mid-July to mid- August) on economic activity." HSBC remarked a constant rise in purchasing prices as a result of the robust business environment in the Gulf Arab state. "August 's data indicated an increase in purchase prices for the thirtieth consecutive month, with the rate of inflation accelerating to reach a three-month high," the report said. While recent months showed the UAE on an expansive track, Williams expressed concerns about the Gulf state's ability in sustaining the growth. "More particularly, we are concerned that the unexpected 3-point jump in new export orders reported in August will prove difficult to sustain given weak global conditions." The UAE also lags behind its big neighbor and major Gulf Arab trade partner Saudi Arabia. "The pace of economic expansion in the UAE also continues to lag that recorded elsewhere in the region, notably Saudi Arabia which has reported headline PMI scores of close to 60 throughout 2012," Williams said.