Tuesday 10, January 2017 by Georgina Enzer

Dubai private sector experiences strong end to 2016

December data highlighted a robust improvement in business conditions across Dubai’s private sector economy, underpinned by faster rates of output and new order growth, according to Emirates NBD.

The seasonally adjusted Emirates NBD Dubai Economy Tracker Index registered 55.9, up from 55.2 in November and the highest reading since July. The index has now posted above the 50.0 no-change mark for ten months running and the latest upturn was broad-based across the three key sectors monitored by the survey.

Travel and tourism remained the best performing sub-category in December (headline index at 56.9), followed by wholesale and retail (56.4). Nonetheless, construction firms recorded a positive shift in growth momentum at the end of 2016, with the headline index up sharply to 54.3, from 51.8 in November.

“The rebound in construction sector activity in December is particularly encouraging after relatively sluggish performance for most of H2 2016. We expect construction will be a key driver of growth in Dubai in 2017 as preparations for Expo 2020 move up a gear,” said Khatija Haque, Head of MENA Research at Emirates NBD.

The headline Emirates NBD Dubai Economy Tracker Index is derived from individual diffusion indices which measure changes in output, new orders, employment, suppliers’ delivery times and stocks of purchased goods.

A reading of below 50.0 indicates that the non-oil private sector economy is generally declining; above 50.0, that it is generally expanding. A reading of 50.0 signals no change.

The survey covers the Dubai non-oil private sector economy, with additional sector data published for travel & tourism, wholesale & retail and construction.

Business activity and employment

Latest survey data pointed to a sharp and accelerated upturn in business activity across the Dubai private sector, with the pace of expansion the fastest since July. Anecdotal evidence suggested that the main factors driving output growth were a supportive economic backdrop, improving new order volumes and competitive pricing strategies.

Job creation remained only marginal in December, with all three key sectors recording relatively subdued rates of employment growth. Construction companies saw the fastest rise in staffing levels, with job creation rebounding to its strongest since May amid reports citing greater workloads and improving confidence regarding the business outlook.

Incoming new work and business activity expectations

New work continued to expand at a sharp rate in December, with the latest rise one of the fastest since early-2015. This reflected strong contributions from travel & tourism and wholesale & retail, alongside an acceleration in construction sector new order growth to its steepest since May. Reports from survey respondents suggested that rising business and consumer spending had driven the latest improvement in new order books.

Private sector companies in Dubai remain upbeat about the year-ahead business outlook. Moreover, the degree of positive sentiment picked up to its highest since June 2015. Stronger business optimism was recorded across all three key sectors, led by travel & tourism.

Input costs and average prices charged

Average cost burdens increased in December and, although only modest, the rate of inflation was the fastest for seven months. Higher input prices and strong competition for new work contributed to a sustained squeeze on operating margins. Reflecting this, prices charged by private sector companies in Dubai decreased for the fifth month running in December. Of the three key sectors, only travel and tourism bucked the overall trend, with average prices charged rising moderately at the end of 2016.

Features & Analyses