Dubai's non-oil economy expands with boost in employment and improved outlook

Back-to-back rises in business activity and increased optimism led to the first increase in employment for almost a year

Dubai's non-oil private sector economy remained in expansion territory in January. AFP

Dubai's non-oil private sector economy expanded in January, as employment picked up and a rapid rollout of Covid-19 vaccines improved the emirate's business outlook.

The seasonally adjusted IHS Markit Dubai Purchasing Managers' Index dropped slightly to 50.6 in January from 51 December, but remained in growth territory for the second consecutive month. A reading above 50 indicates economic expansion, while below points to contraction.

The reduction was driven by slight falls in the output and new orders sub-indices, although both remained in expansion territory.

"Despite sales growth near-stalling, non-oil companies in Dubai increased output for the second month in a row in January," David Owen, an economist at IHS Markit, said.

Back-to-back rises in activity led to the first increase in employment for almost a year. The rise in employment level was the quickest for 14 months.

Firms surveyed expressed greater confidence towards the future business climate, linked to the rapid domestic roll out of Covid-19 vaccines. The UAE boasts the world's second-fastest vaccine roll out and Dubai plans to vaccinate all eligible adults by the end this year. Optimism for the future businesses outlook was the highest since last September. Companies in the travel and tourism sector however gave a neutral outlook for 2021.

"With confidence for 2021 also improving due to the rapid vaccine roll-out in the UAE, employment rose … after the pandemic drove record declines during the second quarter of 2020," Mr Owen said.

Dubai, the commercial and the tourism hub of the Middle East, has taken measures to support businesses and individuals, launching four stimulus packages worth Dh6.8 billion ($1.85bn), to cushion the impact of the pandemic.

Dubai’s economy is forecast to expand 4 per cent in 2021 driven by its effective response to Covid-19, according to government projections released in December.

Strong economic fundamentals of Dubai, Expo 2020 that starts in October this year and the mass inoculation drive underpin the recovery.

Business activity across Dubai has risen in January, although the rate of expansion eased from December's five-month high. Output was ramped up mostly to support ongoing projects, but some firms pointed to an increase in client demand as well, according to the IHS Markit survey.

Growth was recorded across most sectors, with wholesale and retail being the best-performer in January. It was the main driver of job creation at the start of the year. Travel and tourism was the only category to see a decline in business conditions, in part linked to tightening global travel restrictions.

Tourism staged a comeback when Dubai opened up to international travellers in July, however, the emergence of variants and subsequent waves of Covid-19 infections globally curbed a pickup in demand.

"Restrictions are set to curb tourism activity over the first quarter of 2021, whilst developed countries vaccinate their populations, but are likely to ease later in the year," Mr Owen said.