Tourism boom, spending boost to drive Dubai growth in 2020

Amid weaker growth in new orders and a marginal fall in employment in August, Dubai's non-oil private sector economy grew at a much softer rate compared to July, results of a survey by HIS Markit suggest.
As the business outlook slipped to a six-month low, employment fell marginally. But more positively, output prices were broadly unchanged after 15 successive months of discounting, said the monthly survey. However, a majority of survey respondents remained optimistic, with many hoping for a greater volume of clients and sales.
Analysts at S&P Global, the US-based financial information and analytics company, said last week that they expect the completion of Expo 2020-related infrastructure projects and additional residential housing supply to enter the market from existing projects this year. A boost to tourism and related spending linked to Expo 2020 should drive somewhat stronger growth in 2020.
The seasonally adjusted IHS Markit Dubai Purchasing Managers' Index fell from 55.2 in July to 51.7 in August, the lowest reading since February 2016. According to the survey, the slowdown was mostly reflected in the wholesale & retail and construction sectors, with the latter posting the weakest improvement in business conditions for three-and-a-half years.
"The travel & tourism sector also saw an easing in growth, albeit only marginally. Growth in Dubai's private sector economy, as suggested by the PMI, eased in August, with the headline reading dropping to a three-and-a-half year low and only signalling a modest uplift in business conditions," said David Owen, economist at IHS Markit. "Future output expectations dimmed but remained relatively strong. With the Expo 2020 coming next year, firms were still optimistic that activity will expand."
Owen noted that in August, demand growth was notably softer, leading firms to raise activity at a below-average pace and reduce workforce numbers slightly. "Further positivity was also noted on the price front, as selling prices were close to stabilisation during August after 15 consecutive months of discounting."
While competitive pressures led to an easing in new order growth, according to respondents, businesses looked to reduce employee numbers in August, with some citing ongoing cost-cutting measures. The rate of workforce reduction was only marginal, however, said the report.
"Intense competition for new work had previously led firms to lower output charges in each of the past 15 months. However, August data revealed that prices were broadly unchanged," said the survey report.
With activity and new business growing at a weakened pace, firms were less positive around their projections for output in the next 12 months. A majority of respondents remained optimistic though, with many hoping for a greater volume of clients and sales. The Expo 2020 was also a key factor highlighted by panellists as driving future activity growth.
S&P Global expects Dubai's gross domestic product growth to pick up, averaging about 2.5 per cent annually over 2019-2022. The increase will come from increased economic activity associated with Expo 2020 and, after that, by traditional growth engines such as trade and transportation.
The ratings agency said downside risks to growth have risen from trade and the real estate sector. "In our view, relatively low oil prices, accompanied by slower regional demand and rising protectionism in the US and China, could further slow Dubai's transshipment trade flows, which have been sluggish since 2016," the S&P report noted.
- issacjohn@khaleejtimes.com