Softest expansion of Dubai's private sector since 2010

December data points to softer growth of Dubai’s private sector at the end of 2015, with optimism regarding 12-month business outlook slipping to lowest level since April 2012.

As a result, the headline seasonally adjusted Emirates NBD Dubai Economy Tracker Index – which provides an overview of operating conditions in the non-oil private sector economy – fell from 53.4 in November to 51.8 in December.

Even as this signalled a modest improvement in overall operating conditions, it was the weakest rate of improvement since July 2010, with slower increases in business activity, new orders and employment all weighing on the headline index at the end of the year, the Dubai-based Emirates NBD bank said in a media statement.

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 indicates that the non-oil private sector economy is generally declining; above 50, that it is generally expanding. A reading of 50 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.

 “The slower rate of expansion in Dubai in December is unsurprising given the headwinds of strong USD and increased uncertainty about both the global and regional economic outlook,” said Khatija Haque, Head of Mena Research at Emirates NBD.

“Nevertheless, the improvement in tourism sector activity in December is encouraging. Construction sector output also expanded at a robust pace in December, and we continue to expect this sector to be a positive contributor to Dubai’s economic growth in 2016,” she said.

At the sub-sector level, both construction and wholesale & retail businesses saw a slower improvement in overall business conditions. However, travel & tourism firms bucked the trend, with the health of the sector improving at the fastest rate since June.

Key Findings

•  Overall business conditions improved at the slowest pace since July 2010

•  Total new business rose at weakest rate in just over five years

•  Activity growth slowed across construction and wholesale & retail sectors, but improved in travel & tourism

Business activity and employment

Business activity continued to increase across Dubai’s private sector in December, but the latest expansion was the second-weakest in 46 months (behind October 2015). Of the three monitored sub-sectors, both construction and wholesale & retail registered slower growth of activity amid reports of relatively muted market conditions.

In contrast, travel & tourism companies saw a stronger expansion of business activity during December. Reflective of slower overall activity growth, private sector employment also expanded at a softer pace in December. Payroll growth weakened across both travel & tourism and construction companies, while staff numbers were broadly unchanged across the wholesale & retail sector.

Incoming new work and business activity expectations

December data signalled a further rise in total new orders placed at Dubai private sector companies. However, the rate of growth moderated to the weakest since November 2010, with a number of monitored firms commenting on relatively subdued market conditions and greater competitive pressures.

The level of optimism towards the 12-month business outlook slipped in December, with Dubai’s private sector registering the lowest level of positive sentiment since this index began in April 2012. New product launches, marketing strategies and expectations of improving market conditions were all expected to boost output over the coming year. However, some panellists commented that an uncertain global economic outlook weighed on their growth projections.

Input costs and average prices charged

Dubai private sector businesses saw only a moderate increase in overall cost burdens during December. Furthermore, the rate of inflation remained much slower than the series average. Meanwhile, prices charged were broadly stable, with sub-sector data pointing to divergent trends. While tariffs declined at construction and wholesale & retails firms, travel & tourism companies raised their prices for the first time in three months.

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