Dubai’s non-oil sector growth posts big surge in May

Recent government announcements on regulatory reform to support investment and growth

The Dubai Economy Tracker Index (DET) rose to 57.6 in May from 53.9 in April, signalling the sharpest improvement in business conditions in over a year.

Latest survey data signalled a sharp and accelerated improvement in the health of Dubai’s non-oil private sector.

Output and new orders both expanded at their strongest rates since early 2015, with increases in the travel & tourism and wholesale & retail sectors being the key drivers of May’s improvement. Reflective of strong business conditions in the sector, positive sentiment was at its highest since the series began in April 2012.

Output/business activity (64.1) and new work increased at their fastest rate since early 2015, as firms offered discounts and promotions to support demand.

The selling price index declined to 48.4 from 50.2 in April. Margins continue to be squeezed as firms’ input costs continued to rise even as average output prices declined last month.

As a result of the pressure to keep costs contained, employment was broadly unchanged despite the steep acceleration in both new work and business activity.

“The sharp rise in the Dubai Economy Tracker index supports our view that growth in Dubai will be faster this year relative to 2017, but the headline reading masks the squeeze on profit margins which is also evident in the survey data. Firms, particularly in the wholesale & retail sector, cut prices aggressively to boost their output and new orders last month,” said Khatija Haque, head of Mena Research at Emirates NBD.

Data showed firms built up inventories at the fastest rate since January, and business optimism was the highest on record in May.

“Recent government announcements on regulatory reform to support investment and growth, and public sector bonuses likely helped to improve sentiment in the private sector. The key sector surveys show the wholesale & retail trade and travel & tourism sectors contributing the most to the overall improvement in business conditions in Dubai. The construction sector index increased slightly as well, showing a solid rate of expansion in that sector,” said Haque.

The wholesale & retail trade sector index rebounded sharply in May, reaching 58.3 from 53.5 in April. The May reading was the highest since October last year. Both output and new orders surged last month, but on the back of increased promotional activity and price discounting. The selling price index declined to 47.2, the lowest reading since July 2017, even as input costs rose. Employment in the sector was largely unchanged despite the sharp rise in activity last month.

The travel and tourism sector index increased to 57.3 in May as both output and new work growth accelerated. Firms in this sector were able to increase average selling prices slightly in May (51.0), after two months of price declines. This suggests that underlying demand was robust in May. Nevertheless, employment was unchanged month-on-month in the sector.

The construction sector index stood at 54.6 in May, only marginally lower than April’s reading and still signalling a solid expansion in activity in the sector. Both output and new work increased at a sharp rate last month, and employment in the sector increased as well.

Input costs increased in May but a slower rate than in April, but firms cut selling prices aggressively despite facing higher production costs.

Continuing the current phase of growth that began in March 2016, latest data signalled a further improvement in new order books. Furthermore, the rate of growth accelerated to a 39-month high amid successful promotional activities and robust demand conditions, according to panel members.

Positive sentiment towards future growth prospects reached a series-record high in May. New project wins, Expo 2020 and forecasts of robust demand also underpinned business confidence.

Source: Gulf News