Dubai's non-oil private sector economy starts to recover in May as restrictions ease

The emirate's PMI headline reading rose to 46 in May, the highest recorded since February

Businesses in Dubai said the easing of movement restrictions was behind the softer pace of declines in output and new business. Chris Whiteoak / The National

Dubai's non-oil private sector economy improved in May to hit its highest level in three months as the emirate eased restrictions to contain the coronavirus pandemic.

The seasonally adjusted IHS Markit Purchasing Managers' Index reading for Dubai rose to 46 last month from 41.7 in April. A reading above the 50-mark is an indicator of economic expansion.

The headline reading was the highest recorded since February.

Businesses attributed the softer pace of decline in both output and new business to the relaxation of movement restrictions.

New orders declined at their weakest pace in three months but the rate of decline was still sharp because of continued weakness in client demand.

“Businesses highlighted that despite restrictions on economic activity being partly lifted, weak consumer demand and a slow market response stopped them from making headway," David Owen, an economist at IHS Markit, said.

Last month's decline in Dubai's business activity was registered in the travel and tourism, wholesale and retail, and construction sectors.

Tourism registered a sharp contraction for the third month in a row while construction businesses reported the steepest fall in new work as clients remained uncertain as to whether they should commit to new projects during the pandemic.

“Overall, the May PMI data indicates a contraction in Dubai’s private sector in the [second quarter], although the indices appear to have bottomed [out],” Khatija Haque, head of Mena research at Emirates NBD, said in a note on Monday.

“We expect consumer demand to remain relatively soft in the near term in the context of salary cuts and job losses. The external environment is also improving only gradually, but provided it does continue to improve, it is reasonable to expect the PMIs to return to expansion territory in the [third quarter of] 2020.”

The recovery in Dubai’s non-oil economy is in line with an improvement in the UAE’s PMI data, which increased to 46.7 last month, from a low of 44.1 in April, according to IHS Markit.

The UAE economy is opening up after the pandemic caused all but essential businesses to be shut down to stem the spread of the virus.

Public and private sector employees are returning to work in phases, while malls and other private sector businesses have reopened.

Last week, Dubai, the commercial and trading hub of the Middle East, allowed malls and private sector companies to operate at 100 per cent capacity.

However, despite the easing of the restrictions, companies in May reduced headcount further, extending the current round of job losses that began in March.

The rate of job losses was, however, the slowest in three months.

Expectations about business activity in Dubai’s non-oil economy in the next 12 months also ticked up in May, from a record low in April.