Dubai's business conditions improve at quickest pace in a year

Employment in the emirate increased at its fastest rate in more than 18 months

The Dubai skyline. Business conditions in the emirate's non-oil private sector economy continued to improve in July. Pawan Singh / The National

Dubai’s non-oil private sector economy improved at its quickest pace in a year as demand rebounded and businesses recorded an increase in new orders in July.

The seasonally adjusted IHS Markit Purchasing Managers' Index reading rose to 53.2 in July from 51 in June. A reading above 50 indicates economic expansion while one below points to a contraction. The upturn was the second quickest since November 2019.

The latest data points to higher consumer spending that led to the joint-fastest increase in output since July 2020, pushing new employment in the emirate, the commercial and trading centre of the Middle East, to its quickest pace in more than a year and a half.

"Growth in the Dubai non-oil economy re-accelerated in July, helped by a rise in customer numbers that boosted sales in the travel and tourism and wholesale and retail sectors," said IHS Markit economist David Owen.

"Businesses will be hoping to build on the economic recovery throughout the rest of the year. The headline PMI was at its second highest in 20 months, to offer further reassurance that the economy is heading in the right direction.”

A much quicker rise in output levels at the start of the third quarter helped to propel the index upwards, with travel and tourism businesses recording the biggest improvement in output growth since June while the wholesale and retail sector and construction also expanded at a faster pace.

The latest data underscored the eight month of output expansion, the joint-fastest increase for the output index since July last year.

Surveyed businesses pointed to growth in demand and improving economic conditions as Covid-19 restrictions continue to be eased amid the emirate's rapid mass vaccination programme.

Delays to input shipments and shortages of key items led to higher input prices for companies in July. However, the overall rate of inflation remained modest, slower than the long-run average.

While some businesses raised output charges in response to higher costs, a greater number lowered them as part of their discount strategies to stimulate sales.

The volume of new orders rose at its quickest pace in three months and also exceeded growth rates recorded throughout the 16 months before April.

However, businesses underscored rising pressure on capacity in July as levels of outstanding work hit their highest level in more than two years, according to the survey.

Growth in the Dubai non-oil economy re-accelerated in July, helped by a rise in customer numbers that boosted sales in the travel & tourism and wholesale and retail sectors

David Owen,
economist, IHS Markit

The pace of Dubai's recovery has picked up on the back of wide-scale testing and vaccinations. The rapid response of the government and its "adaptive measures" to contain the pandemic have enabled the emirate to maintain economic growth despite headwinds, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, said last week.

On Friday, officials said 80.1 per cent of the UAE population had received at least one Covid-19 vaccine dose while 71.71 per cent are fully vaccinated. More than 17 million vaccine doses have been administered across the country.

Key sectors such as tourism and property have made a significant recovery on the back of Dh7.1 billion ($1.93bn) stimulus pumped into the economy since the onset of Covid-19. Dubai's economy is expected to grow by 4 per cent this year, according to government data.

Business confidence in Dubai has also hit a seven-year high as companies in the emirate expect business conditions to improve before the Expo 2020 world fair begins, according to a July survey by the Dubai Chamber of Commerce and Industry.

Companies employed more people in July. Non-oil businesses beefed up sales teams in response to rising customer footfall and the rate of new employment was the fastest since November 2019.

"There was a renewed increase in employment among wholesale and retail companies, while growth accelerated in the travel and tourism and construction sectors," IHS Markit said.

Businesses surveyed by IHS Markit expressed optimism towards future business activity, which rose to a three-month high, with some respondents pinning hopes on an economic recovery due to the vaccine programme and demand related to Expo 2020.

"We remain optimistic that non-oil sector growth will continue to accelerate through the end of this year, underpinned by high vaccination rates, increasing consumer spending and a gradual rebound in international travel," Emirates NBD, Dubai's largest lender, said in a statement on Monday.