Business activity in Dubai's non-oil private sector economy grew at a robust pace in January, albeit at a slower rate compared with the previous month, as demand remained strong and new orders increased amid continued economic momentum.
The seasonally adjusted S&P Global Dubai purchasing managers' index reading eased to 56.6 last month, down from its 16-month high of 57.7 in December and well above the neutral 50-point mark separating economic expansion from a contraction.
The index remained higher than the long-run average of the survey and indicated a sharp improvement in operating conditions in the emirate.
“The Dubai PMI data remained very positive at the beginning of the year, with output levels rising strongly on the back of healthy demand conditions and respective increases in new orders and purchasing,” said David Owen, senior economist at S&P Global Market Intelligence.
Businesses surveyed said the upturn was mainly driven by the further strengthening of new order volumes, although the pace of growth slipped to a five-month low in January. Stronger client demand and greater promotional activities drove new orders and output higher.
But businesses reported increasing competition in the market that weighed on the pace of sales growth last month, resulting in companies resorting to discounting, which is likely to squeeze profit margins.
“There are teething issues starting to appear. Competition is the main one, with surveyed businesses finding it increasingly difficult to drive sales growth as the market becomes crowded,” Mr Owen said.
Dubai, one of the main commercial, tourism and financial hubs in the Middle East, has maintained a robust growth momentum since bouncing back from the pandemic-driven slowdown.
The emirate's economy expanded by an annual 3.3 per cent in the first nine months of last year, driven by growth in the tourism and transport sectors, the emirate's media office said.
Dubai is following the D33 economic growth agenda it launched in January last year, which aims to boost the size of the economy to Dh32 trillion ($8.71 trillion) by 2033 and establish Dubai as one of the top three cities in the world.
Dubai recorded its best annual tourism performance in 2023, with international arrivals increasing by 19.4 per cent annually to 17.15 million, amid the continued expansion of its economy.
Last year’s figure exceeded the previous record of 16.73 million visitors registered in 2019, according to the latest data from Dubai’s Department of Economy and Tourism.
Cost pressures in the non-oil economy of Dubai were “fairly subdued at the start of the year”, although the rate of inflation crept up slightly from December's five-month low, according to the S&P survey.
Businesses also reported longer shipment times that led to an increase in transport costs as disruptions in the Red Sea continue.
“The Red Sea crisis also appears to be a growing risk to Dubai, especially if more companies experience delays on their shipments,” Mr Owen said. “Supply chain performance was only just in positive territory in January, with any escalation of the crisis likely to lead to longer wait times, higher costs and capacity constraints.”
