Dubai's non-oil economy climbs to three-year-high in June

New orders rose sharply at the end of first half as travel demand continued to support sales despite rising cost pressures

The Dubai skyline. Non-oil business activity in the emirate continued to expand at a robust pace in June. AFP

Business activity in Dubai's non-oil private sector economy maintained a robust speed of expansion in June, improving at the quickest pace in three years, as new orders rose sharply despite inflationary pressures.

The headline seasonally adjusted S&P Global UAE Purchasing Managers' Index rose to 56.1 in June from 55.7 in May to its highest reading since June 2019. A reading above the neutral 50 level indicates economic expansion, while one below points to a contraction.

"The Dubai PMI continued to trend upwards in June, reflecting further strength in new business and activity,” David Owen, an economist at S&P Global Market Intelligence, said. “Travel demand continued to support sales, and there was a renewed increase in new work in the construction sector.”

The volume of new business increased sharply at the mid-point of this year, with the growth rate accelerating at the fastest pace since July 2019. Recovering client demand and increased promotional efforts by businesses both drove sales in June.

Business surveyed also reported a continued rise in output in June. Despite easing slightly from May, the output growth rate last month was among the fastest recorded over the last three years.

After softening slightly in May new work at construction companies picked up pace in June, however, the travel and tourism sector remained the key driver of growth in the emirate.

Business reported a marked rise in tourism-related business activity in Dubai, the Middle East's commercial and tourism hub, as travel restrictions continued to ease around the world.

Dubai's economy, which last year rebounded strongly from the coronavirus-induced slowdown, has carried the growth momentum into this year, supported by the resurgent travel and tourism sector and its rapidly improving real estate market.

The emirate's economy grew 6.2 per cent in 2021, according to preliminary data from the Dubai Statistics Centre. In the first three months of this year, Dubai's gross domestic product expanded 5.9 per cent, according to government data.

The hospitality, and transport and storage were among the fastest-growing sectors of the emirate's economy in the first quarter, expanding 47 per cent and 40 per cent, respectively.

The strong performance of the tourism sector continued in the second quarter of this year.

Dubai welcomed about 6.17 million international visitors in the first five months of the year, three times more than the approximately two million recorded in the same period last year, according to the emirate's Department of Economy and Tourism.

The surge in visitor numbers was driven by government initiatives to stem the Covid-19 pandemic and the momentum generated by Expo 2020 Dubai, the DET said last month.

Dubai's real estate sector has also rebounded strongly from the the pandemic-driven slowdown. Real estate transactions totalled 6,652 in May, which was the highest volume in the past decade, according to the Dubai Land Department data.

Despite a robust economic momentum, business in Dubai reported increasing cost pressures in June with a rise in fuel prices and supply bottlenecks, amid Russia's continued military assault in Ukraine.

The rate of input cost inflation was the highest recorded since January 2018, driven by an increase in expenses in both construction and wholesale and retail sectors.

However, despite the pressure to pass costs onto customers, non-oil businesses reduced their output charges in June. The rate of discounting last month was the quickest since August 2020.

The sharp uptick in global energy prices is weighing on businesses, and consumers are also likely to "feel the pinch on spending as fuel prices spike", Mr Owen said. "To aid sales, many firms are waving off price rises for now, and offering promotions where possible to combat strong market competition."

With new order growth picking up pace, businesses were confident of a rise in output over the coming year in June. Optimism in business momentum rose to the highest level since October last year, "with around twice as many firms expecting growth compared to that seen in May".