Dubai's non-oil economy returns to growth in December

The emirate records first expansion in three months as a strong rise in new work helps businesses recover from the pandemic-driven slowdown

Dubai non-oil private sector economy returned to growth at the end of 2020. Reem Mohammed / The National

Dubai’s non-oil private sector economy returned to growth in December, amid a strong rise in business activity and a faster increase in new work in the emirate.

The seasonally-adjusted IHS Markit Purchasing Managers' Index climbed to 51, up from 49 in November. A reading above 50 indicates expansion in the emirate's non-oil economy and below points to contraction. December witnessed the first expansion in three months as businesses continue to recover from the pandemic-driven slowdown.

“An increase in output and new orders led to a renewed improvement in the health of the Dubai non-oil sector in December,” David Owen, an economist at IHS Markit, said.

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The improvement in the non-oil economy was largely driven by a sharp rise in business activity in December. The rate of expansion was the second-quickest throughout 2020, behind the uptick seen in July, according to the survey.

However, declining employment and lower levels of inventory purchases “acted as drags on the headline reading”, Mr Owen said.

Dubai, the commercial and trading hub of the Middle East, has lifted most of the restrictions put in place last year to contain the spread of the virus. The emirate has taken measures to support its economy, launching five stimulus packages worth Dh7.1 billion ($1.93bn) to help offset the shock of the pandemic and the fallout in the form of job losses and disruption to businesses.

The emirate’s economy is expected to expand 4 per cent this year, driven by its effective response to protect livelihoods and curb the virus, according to government projections released last month.

Strong economic fundamentals and the pandemic-delayed Expo 2020 in October next year are also driving the emirate's economic recovery. In December, Dubai began a free mass inoculation campaign with the Pfizer-BioNTech Covid-19 vaccine, which is expected to further boost confidence of businesses and help increase economic activity.

Firms said sales during December increased at the strongest rate since September. There were renewed expansions in new work across the travel and tourism and construction sectors, but growth was quickest in the retail and wholesale segment during the holiday period.

Companies in Dubai, continued to lower their inventories in December, but the rate of decline was modest and was attributed to the clearing out of old stocks. With input demand lower, and fewer deliveries required, suppliers managed to shorten lead times for the first time in four months.

Average selling prices fell as companies continued efforts to secure more business by offering discounts. However, the pace of price declines softened for the fourth consecutive month and was the least marked since May.