Dubai private sector output and new orders surged in July

(8/10/2017 6:03:00 AM)

Dubai’s non-oil private sector continued to expand in July with output (61.0) and new orders (62.0) increased sharply in July, although the output index was slightly lower than in June, according to the Emirates NBD Dubai Economy Tracker Index (Deti).

Deti was broadly unchanged in July at 56.3, still signalling robust overall expansion. The latest index reading was above the long-run trend (55.2). By sector, the wholesale & retail industry (index at 57.9) was once again the best performing category, followed by travel & tourism (56.3) and the construction sector (54.8).

Firms attributed the rise in business activity to “favourable economic conditions and more projects”. Employment growth was marginal however, despite the strong rise in output and new work.

Market conditions remained competitive and firms reduced selling prices on average in July, although the decline was marginal with the output price index only a touch below the neutral 50 level at 49.6.

“While the headline index continues to reflect strong growth in the non-oil economy in July, firms’ margins continue to be squeezed as they lower selling prices, particularly in the trade and hospitality sectors. Employment growth remains soft overall,” said Khatija Haque, Head of Mena Research at Emirates NBD.

The inability of firms to pass on rising input costs to consumers is likely a key factor behind sluggish employment growth. Firms remained optimistic overall about the prospects for order growth over the coming 12 months.

Business confidence increased from June’s 10-month low, but remained weaker than the overall level of positive sentiment recorded on average in the series history. Optimism was firmly rooted in expectations of further improvements in demand, supported by promotional activities.

The wholesale & retail trade sector index eased slightly to 57.9 in July from 58 in June, still reflecting a sharp improvement in output and new work last month. However, the faster growth in the volume of new orders recorded last month was partly driven by extensive price discounting and other promotional activities: selling prices declined at the fastest rate in five months in July.

The headline travel & tourism sector index rose to 56.3 in July from 54.4 in June, the highest reading in three months. Both output/activity (60.1) and new orders (61.1) increased at a faster rate last month. Some of the rise in output and new order was likely due to further promotional discounting. However, employment increased marginally in July (51), reversing a slight drop in June. Business expectations for the coming twelve months were also higher in July, with businesses in this sector more optimistic than those in construction and wholesale & retail trade sectors.

Construction sector saw slower expansion in July. The construction sector index declined to 54.8 in July from 57.4 in June, reflecting a slower rate of growth. Both output (59) and new work (59) still increased at a sharp rate last month, however. Employment also increased — albeit marginally — after declining in June.

Firms in the construction sector continued to enjoy some pricing power, as selling prices increased for the third month in a row, helping to offset the impact of rising input costs. Business optimism for the coming year also improved in July, with respondents citing Expo 2020 as a key factor in their anticipation of future output growth.