Dubai's non-oil economy surges to 35-month high on tourism recovery

Business activity in the emirate improved in May despite rising inflationary pressures

The Dubai skyline. The emirate's S&P Global purchasing managers' index reading climbed to 55.7 in May, from 54.7 in April. Reuters

Business activity in Dubai's non-oil private sector economy showed a “robust improvement” in May, surging to its strongest level in 35 months on the back of marked growth in the emirate’s travel and tourism sector, despite rising inflationary pressures.

The headline S&P Global Dubai Purchasing Managers' Index reading climbed to 55.7 in May, from 54.7 in April. A reading above the neutral 50 level indicates economic expansion while one below points to a contraction.

The latest reading is the strongest since June 2019. Marked new business growth underpinned the improvement in the non-oil economy, with a rise in client demand as markets continued to recover from the pandemic in May.

The upturn from April was the second-fastest in about three years despite “the global energy market volatility driving cost inflation to an over four-year high”, S&P Global economist David Owen said.

A “fast-recovering” tourism sector is offsetting softness elsewhere, he said.

Dubai's economy, which made a strong bounce-back last year from the coronavirus-induced slowdown, has carried the growth momentum into this year, driven by the travel and tourism sector and its constantly improving property market.

The emirate's economy grew by 6.3 per cent a year in the first nine months of 2021, according to preliminary data from the Dubai Statistics Centre. Emirates NBD estimates that it grew about 5.5 per cent for the full year 2021 — an upward revision from its earlier forecast of 4 per cent.

Dubai, the commercial and tourism centre of the Middle East, welcomed about 4 million visitors in the first quarter of this year, up 214 per cent from the same period last year, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, said in May.

The emirate was also ranked first worldwide in terms of hotel occupancy rates, with hospitality establishments recording a rate of 82 per cent in the first three months of 2022.

These “figures confirm the strength of our tourism sector” and Dubai's top position within the industry, Sheikh Hamdan said in May on Twitter.

The emirate hosted 7.28 million international overnight visitors between January and December 2021, up 32 per cent a year, data from Dubai’s Department of Economy and Tourism showed.

Dubai was one of the first global destinations to reopen to tourists in June 2020 after it put in place effective pandemic-control measures.

The tourism sector recorded a sharp expansion in May sales as bookings rose amid easing travel restrictions.

However, wholesale and retail companies registered a slowdown in the growth of new orders. New work flows in the emirate's construction sector also softened for the first time since September last year, according to the survey.

The softness in both sectors came amid a sharp increase in input costs in May as the pace of inflation quickened to its fastest level in slightly more than four years.

An increase in fuel prices, amid Russia's continued military assault in Ukraine, was cited as the biggest cost burden.

Rising prices of steel, aluminium, chemicals and timber also contributed to the cost pressure businesses faced.

“The uplift in input costs also placed further pressure on firms' margins, amid additional reports of charge discounting,” Mr Owen said.

However, businesses surveyed said continuing project work and new orders are supporting the expansion of the emirate's non-oil economy.

Companies expanded their workforce in May, after a slight reduction in April, and “the pace of job creation was the fastest in 2022, so far”.

However, the outlook for the coming year was clouded by inflation fears that weighed on expectations of sales growth.