Business conditions in Dubai continued to improve in January despite Omicron headwinds

Construction sector led the expansion, with output reaching the strongest level since mid-2019

The skyline of Dubai at night. Business conditions in the emirate continued to improve in January. AFP

Business conditions in Dubai's non-oil private sector economy continued to grow in January, albeit at a softer pace, driven by an increase in new orders and boost in output despite Omicron headwinds.

The emirate's seasonally adjusted IHS Markit Purchasing Managers' Index reading stood at 52.6 in January, down from 55.3 in December. A reading above 50 indicates economic expansion, while one below points to a contraction.

The index was above the 50 neutral mark for the 14th consecutive month, indicating a solid upturn in business conditions across the non-oil private sector. Activity in Dubai’s private sector economy was at its strongest level in two and a half years in December, amid a demand boost from Expo 2020 Dubai.

The expansion in January was led by another “marked upturn in construction output”, which was the joint-strongest since mid-2019. However, softer expansions in the wholesale and retail, and travel and tourism sectors meant the overall increase in non-oil activity was slightly slower than in December.

After a strong final quarter of 2021, the Dubai non-oil economy saw a “much milder rise in new work volumes that firms will hope is largely a blip due to the Omicron wave”, David Owen, an economist at IHS Markit, said.

“Despite the slowdown in sales growth, business activity continued to rise at a sharp pace.”

Output levels in the emirate continued to rise during January, as businesses reported further improvement in economic conditions and recovery from the pandemic.

The latest data indicated a modest uptick in new orders as well. Several businesses surveyed said the resurgence in Covid-19 cases linked to the Omicron variant led to a drop in client demand. Strong competition also weighed on growth.

Dubai’s economy has bounced back strongly from the pandemic-driven slowdown in 2021 and economic momentum has continued this year. The government’s widespread testing and mass vaccination campaign across the country has helped in curbing the pandemic, and the number of new Covid-19 cases are consistently on the decline.

Dubai’s tourism sector has also recovered strongly from the challenges of the pandemic, with international visitor numbers in the fourth quarter at around 74 per cent of pre-pandemic levels.

“This was despite a challenging year which was dominated by an incredibly complex picture of global travel restrictions and lockdowns that fluctuated with multiple waves of Covid-19,” Emirates NBD said in a research note on Wednesday.

Despite the slowdown in sales growth, business activity continued to rise at a sharp pace

David Owen,
economist, IHS Markit

Data published by Dubai’s Department of Economy and Tourism showed the emirate attracted 7.28 million international visitors last year, a 32 per cent year-on-year growth. In the fourth quarter alone it received 3.4 million visitors.

The value of property deals in Dubai also more than doubled last year and broke a 12-year record in terms of real estate sales transactions, buoyed by demand in the secondary real estate market as the UAE economy continued to rebound.

Supply chain challenges that are hindering economic activity globally also remained evident in the Dubai’s non-oil private sector in January. Businesses surveyed reported delays in the shipment of goods that drove a rise in outstanding work, despite softer demand pressures.

There was also a rise in purchasing prices as supply pressures pushed raw material costs higher, although the pace of inflation eased from a nine-month high in December.

However, despite inflationary pressures and global supply chain issues, businesses expect “market conditions to continue to improve as the pandemic hopefully has a more limited impact through 2022”, Mr Owen said.