Dubai business activity softens in June but still maintains growth trajectory

Emirates NBD’s latest economy tracker shows sharp improvement in construction and wholesale and retail sectors

Emirates NBD, the biggest lender in Dubai by assets, is the latest financial institution to declare its exposure to buyout firm Abraaj. Jeffrey E Biteng / The National 

Business growth in Dubai’s non-oil private sector economy eased in June from a 40-month high in May, but the overall pace of expansion remained strong as business confidence touched a record high, according to Emirates NBD’s latest economy tracker.

“The wholesale and retail trade sector performed particularly well last month, which may have been partly due to the Eid holidays,” Khatija Haque, head of Mena research at Emirates NBD, said in the report released on Monday.

“The sharp improvement in business conditions in the construction sector supports our view that infrastructure investment will be an important driver of economic growth this year.”

The UAE lender’s seasonally adjusted Dubai Economy Tracker Index – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – fell to 56.0 in June, from 57.6 in May. Despite the drop, the index remained at a level “indicative of a marked expansion above the historical average”, Emirates NBD, the biggest bank in Dubai by assets, said.

A reading below the base line of 50 indicates that the non-oil private sector economy is shrinking; above 50 is a sign of economic expansion.

Wholesale and retail sector was the strongest performer in June at 58.6, followed by construction at 57.1 while travel and tourism sectors both reached 54.9 points. The overall decline last month reflects easing travel and tourism growth momentum, the lender said.

“Despite the decline in the headline index in June, new work and output both increased at a sharp rate, reflecting strong demand,” Ms Haque said. Business confidence accelerated in June to the highest level seen since the survey began in 2012, amid a strong pipeline of new project orders and work outstanding.

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Businesses surveyed reported favourable conditions and strong inflows of work. Although slightly below the levels recorded in May, it was above the long-run average – contributing to the phase of rising output that began in March.

Average cost pressures increased at the weakest pace seen in this phase despite input price inflation continuing for the third month running, Emirates NBD said, and output charges dropped in June in spite of promotional efforts.

Job creation in the emirate remained subdued in June.

“According to anecdotal evidence, some firms hired additional staff in anticipation of new project starts, although these were negated by those that reduced payroll numbers to cut costs,” the bank said.