Khatija Haque - Head of MENA Research
Athanasios Tsetsonis - Sector Economist
Published Date: 10 January 2018
The Emirates NBD Dubai Economy Tracker Index (DETI) slipped to 54.7 in December – the lowest reading since October 2016 - signaling a slower rate of expansion in Dubai’s economy last month. The main culprit was slower output/ activity growth in December (56.1 down from 59.5 in November), as new orders remained strong at 59.1. Employment eased further to 50.4, close to the ‘no change’ level.
Margin pressures eased slightly in December, as input cost inflation slowed and firms were able to increase selling prices on average, albeit only marginally. The rise in selling prices in the construction sector (54.2) and wholesale & retail trade sector (52.1) were the strongest since these series began in March 2015.
Firms were slightly more optimistic in December compared with November, citing an expected economic upturn and incoming new projects in the survey. Inventories also increased at a solid rate in December. Looking at the three sector surveys, the wholesale & retail (54.9) was the best performing sector, closely followed by construction (53.5). The travel & tourism sector (51.2) experienced the slowest improvement in business conditions in December on a seasonally adjusted basis.
The annual data is more encouraging. The headline DETI averaged 56.0 last year, sharply higher than the 53.7 recorded in 2016 and also better than 2015 when the index averaged 54.7. The survey indicates that Dubai’s economic growth probably accelerated last year, which is in line with our forecast.
However, if we look at the components of the survey, there are some key trends worth highlighting:
Source: Emirates NBD Research
After posting a record high in October, the wholesale & retail sector index eased to 54.9 in December, well above the neutral 50.0 level but still signaling slower sector growth. Output growth slowed sharply in the sector last month, with this index declining to 54.2 from readings above 60 in September, October and November. New order growth remained strong at 60.4 in December, although this was still the lowest reading since May 2017.
Encouragingly, firms in the wholesale & retail trade sector were able to increase selling prices on average in December, and by more than their input cost inflation. This (modest) margin expansion has only occurred twice since the survey began in March 2015.
After several months of exceptionally strong output growth in the construction sector, the output index eased to a still-high 56.5.in December. New work growth also slowed last month but remains firm with the index at 55.3. The overall construction sector index fell to 53.5 from 54.5 in November, the lowest reading since February, but it remains well in expansion territory. Moreover, firms remain optimistic about the prospects for the coming year, as Expo 2020 projects are expected to underpin activity in the sector.
Employment increased slightly in December, with this index rising to 51.2 from 50.6 in November. The overall rate of job growth in the construction sector has been modest overall in 2017, but slightly higher than the average for the whole of Dubai.
Despite input cost inflation easing compared with November’s reading, average cost burdens continued to increase at a marked pace overall in December. However construction firms in Dubai were able to pass on these higher input costs, with selling prices rising at the sharpest rate in the survey history.
The headline travel & tourism sector index declined to 51.2 in December from 52.0 in November, the lowest reading in 22 months. While the survey still shows expansion in the sector, the growth momentum has slowed sharply over the last four months compared with earlier 2017. This is most evident in the business activity/ output index, which fell to 52.1 in December from 54.2 in November and well below the 2017 annual average of 57.8. New work also rose at a slower rate last month, and employment was broadly unchanged.
Average cost burdens faced by travel & tourism firms increased marginally in December, and input cost inflation was more subdued in the sector in 2017 relative to 2016. Firms in the sector reduced selling prices (albeit marginally) last month, for the fourth month in a row. Nevertheless, respondents remained very optimistic about the prospects for output growth over 2018.