Business activity in Dubai hits strongest level since June 2019 on Expo boost

A sharp rise in new orders contributes to the continued improvement of the non-oil private sector economy

Business activity in Dubai's non-oil private sector economy improved in December. Chris Whiteoak / The National

Business conditions in Dubai's non-oil private sector economy were at their strongest level in two and a half years in December, driven by a sharp increase in new orders amid a Expo 2020 Dubai demand boost and an improvement in the tourism sector.

The emirate's seasonally adjusted IHS Markit Purchasing Managers' Index reading climbed to 55.3 in December, from 54.5 in November, signalling a sharp improvement in operating conditions as the non-oil economy continued to recover.

A reading above 50 indicates economic expansion while one below that points to a contraction.

The upturn was driven by a “robust increase in new order volumes”, IHS Markit economist David Owen said. The rate of growth was the quickest recorded since July 2019 and back in line with the trend for the IHS Markit survey series, which began 12 years ago.

"Dubai's PMI continued to signal strong growth in the non-oil private sector at [the end of the year], with Expo 2020 and a general improvement in demand helping to lift the economy further out of its pandemic-induced downturn,” Mr Owen said.

Businesses surveyed said the increase in new work was mostly driven by the easing of coronavirus-related restrictions and a rebound in the travel sector, which, along with the Expo, boosted tourism demand.

Business managers also cited an improvement in local sales amid growing consumer confidence in the economic recovery.

"The new orders [sub-]index was at its highest level for 29 months, and back in line with the series trend after running below it for the entirety of the pandemic," Mr Owen said. "Output was also strong, expanding at the second-fastest pace since mid-2019."

The travel and tourism sector continued to lead the expansion of Dubai's private sector non-oil economic expansion in terms of sales growth.

The number of visits to Expo 2020, which began in October, was about nine million at the halfway mark, organisers said last week. A total of 8,958,132 visits were made until the end of December, with season pass holders comprising 47 per cent of total visits.

The world's fair, which will run for six months, has also driven the emirate's wholesale and retail sector, which continued to improve in December.

Last month, new work at construction companies also grew at its fastest pace since February, but lagged the pace of growth seen in the other two sectors, according to the survey.

Output in the non-oil economy also increased at a sharp pace in the final month of 2021, with the expansion only slightly softer than October's recent peak.

However, backlog volumes continued to rise as companies struggled to complete orders.

Employment in the emirate's non-oil economy also grew in December, with the latest data indicating a renewed push to improve staffing. The rise in employment was modest but among the strongest recorded since the start of the pandemic.

The latest data signalled no change in quantity of inputs purchased by businesses in December, ending a five-month sequence of growth on the back of higher prices for raw materials.

The rate of overall input price inflation rose to its highest level since March.

"Inflationary pressures were much sharper ... as higher energy and raw material costs drove the fastest rise in overall input prices for nine months," Mr Owen said.

Despite the sharp increase in non-oil economy growth, uncertainty remains as a result of the fast-spreading Omicron coronavirus variant.

Many companies are uncertain how Omicron will affect travel but there is some optimism that output will expand over the course of this year.

"The Dubai PMI survey supports our view that the emirate [and the whole of the UAE] benefitted from an acceleration in gross domestic product growth in the final quarter of 2021," Emirates NBD said in a research note on Tuesday.

"While there are some near-term headwinds to growth, we expect the non-oil sectors to continue to recover from the pandemic in 2022."

Dubai is running a mass testing and rapid vaccination campaign to counter the pandemic. This has helped its economy to make a strong rebound from the coronavirus-induced slowdown.

The emirate's economy is forecast to expand 4 per cent in 2021, according to government projections. The emirate was one of the first cities globally to reopen commercially in July 2020 and it continues to stay open while ensuring strict compliance with health and safety measures.

It welcomed 4.88 million visitors between January and October 2021, with international visits during October alone reaching more than one million, according to figures released by the Dubai Media Office.

Hotels in Dubai recorded a 16.8 per cent surge in occupancy in the first 10 months of the year, according to a CBRE report.

The property sector is also making a strong recovery from the pandemic-induced slowdown. Total property sales transactions in Dubai surged 88.37 per cent annually in the first 11 months of 2021, according to the latest data by the Dubai Land Department.