Dubai businesses post 3-year high growth in June

Business conditions in Dubai improved at the quickest pace in three years as the economy maintained a robust speed of expansion in June, driven by a rebound in travel, tourism and construction activities.

The upswing in June was despite a rapid acceleration in input cost inflation, driven by surging fuel prices and knock-on effects on material and transport costs, according to S&P Global Dubai Purchasing Managers' Index (PMI) survey report.

The PMI rose for the second month running to 56.1 in June, from 55.7 in May, and was the highest reading since June 2019.

"The PMI continued to trend upwards in June, reflecting further strength in new business and activity,” said David Owen, economist at S&P Global Market Intelligence.

Travel demand continued to support sales, and there was a renewed increase in new work in the construction sector. "That said, the economy also faced the challenge of rising inflationary pressures, which led to the quickest increase in input prices since the start of 2018. The sharp uptick in global energy prices weighed heavily on businesses, with consumers also likely to feel the pinch on spending as fuel prices spike,” said Owen.

Dubai’s non-oil business activity continued to expand at a robust rate at the midpoint of the year, as firms indicated that rising customer demand had driven uplift in output. Despite easing slightly from May, the rate of expansion was among the fastest recorded over the last three years. New business volumes also increased sharply in June, with the rate of growth accelerating to the most marked since July 2019.

As Dubai is poised to enter a new phase of growth propelled mostly by its knowledge-based economy, the emirate recorded a 5.9 per cent jump in GDP to Dh102 billion in the first quarter of 2022 after posting a 6.2 per cent growth in 2021. Dubai’s exemplary growth rate, which was underpinned by strategic initiatives and economic stimulus programmes, demonstrates the emirate's strong economic fundamentals and ability to maintain sustainable growth, economists said.

While attractive fiscal measures directly helped to stimulate economic growth in Dubai, the success of Expo 2020 Dubai was an important factor in driving a post-pandemic tourism boom, leading to increased air and sea traffic and record foreign trade, they noted.

The International Monetary Fund has revised upward the economic growth outlook for the UAE in 2022 to 4.2 per cent in 2022 -- up from its previous forecast of 3.5 per cent. The latest IMF projection aligns with the forecast made by the Central Bank of the UAE for 2022.

In June, Dubai firms continued to reduce their output charges despite the pressure to push rising costs onto their customers. In fact, the rate of discounting quickened to the fastest since August 2020, as panellists mentioned that strong competition had forced them to lower their prices.

According to the PMI report, for the sixth month running, non-oil businesses saw an improvement in supplier performance during June, amid reports of a softening impact from the pandemic and increases in vendor capacity.

“That said, with some respondents seeing delays at customs and a lack of product availability, the rate at which lead times shortened was the weakest seen in the current sequence. Nevertheless, firms were able to increase their stocks of purchases.”

Employment also rose, albeit only marginally. With new order growth picking up to a near-three-year high, businesses were increasingly confident of a rise in output over the coming year in June. Confidence rose to the highest since last October, with around twice as many firms expecting growth compared to that seen in May. Survey respondents suggested that output projections were generally unfazed by rising cost pressures.

Owen said many Dubai firms are waving off price rises for now, and offering promotions where possible to combat strong market competition to propel sales. However, if cost inflation is sustained at a high level in the second half of 2022, it will become increasingly difficult for firms to keep price increases at bay.” — issacjohn@khaleejtimes.com

• Dubai