Dubai returns to growth as business activity rebounds

Dubai’s businesses indicated a return to growth at the end of 2020 amid a strong rebound in activity and a faster increase in new work, market research for December shows.

However, employment numbers in private sector companies continued to fall as sentiment for the upcoming year was still subdued, the IHS Markit Dubai Purchasing Managers' Index survey report said.

The PMI index, which is derived from individual diffusion indices that measure changes in output, new orders, employment, suppliers’ delivery times and stocks of purchased goods, rose above the 50.0 no-change mark in December, posting 51.0 (from 49.0 in November) to indicate a modest expansion in the non-oil economy, and the first seen for three months.

The survey, which covers the Dubai non-oil private sector economy with additional sector data published for travel & tourism, wholesale & retail and construction, showed weak cost pressures in December, supporting a further drop in selling prices, albeit at the slowest rate since May.

Business analysts said with the reopening of air, land and sea border with Qatar after three-and-a-half years, Dubai stands to benefit most in the region with an expected resurgence in cross border trade, re-exports, aviation, hospitality and tourism, which are strong pillars of the emirate’s economy.

David Owen, economist at IHS Markit, said an increase in output and new orders led to a renewed improvement in the health of the Dubai non-oil sector in December, shown by the headline PMI rising back above the 50.0 neutral mark.

He pointed out that at 51.0, the index signalled only a slight expansion in Dubai's economy, as falling employment, lower stocks of purchases and shorter delivery times all acted as drags on the headline reading.

"Looking ahead, firms continued to present a highly subdued outlook for business activity in December, despite some confidence that the confirmed effectiveness of Covid-19 vaccines should help a global economic recovery in 2021. Businesses noted that the after-effects of the pandemic will continue to be felt across the non-oil sector, particularly as hiring remains weak and containment measures continue to stem export demand," said Owen.

According to forecast by Dubai Economy weeks before the dramatic decision to reopen borders with Qatar was announced, Dubai is expected to grow by four per cent next year following a quick economic recovery due to effective policy measures introduced by the government to contain the Covid-19 pandemic, according.

Economic growth in Dubai declined by 10.8 per cent during the first half of 2020 and is expected to end the year with a 6.2 per cent contraction due to the government’s swift response to the pandemic and its strong economic fundamentals that have paved the way for rapid recovery.

The ongoing initiatives, in addition to the Expo 2020 scheduled to be hosted next year, will drive increased investment inflows and job creation in the coming years. “Dubai is a bright example of an economy that has succeeded in protecting lives and securing livelihoods by limiting the impact of the Covid-19 pandemic,” Sami Al Qamzi, director-general of Dubai Economy, has said.

In December, the improvement in the headline PMI was largely driven by a sharp rise in business activity in December, after Dubai non-oil firms curtailed output midway through the final quarter. The rate of expansion was the second-quickest throughout 2020, bettered only by July's uptick.

Firms related the rise in output to higher sales during the month, which increased at the strongest rate since September. There were renewed expansions in new work across the travel and quicken from November & tourism and construction sectors, but growth was quickest in the retail & wholesale category, said the report.

However, the increase in client demand failed to drive a rise in hiring activity, as December data signalled a tenth consecutive fall in job numbers. Moreover, the rate of job shedding accelerated slightly since November.

Another trend seen in December was that companies in Dubai continued to lower their inventories of inputs, but the rate of decline remained modest.

issacjohn@khaleejtimes.com

Issac John

Editorial Director of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.