Dubai PMI: Higher input costs squeeze margins in March

Khatija Haque - Head of Research & Chief Economist
Published Date: 11 April 2021

 

Dubai’s PMI rose fractionally to 51.0 in March from 50.9 in February, as the non-oil private sector continued its gradual recovery.  Business activity increased at a slower rate than in February, while new work increased slightly m/m.  The employment index fell below the neutral 50-level for the first time in three months, but the decline in employment was only slight.

Input costs rose at the fastest rate November 2018 as global supply chain delays pushed up costs, and suppliers’ delivery times lengthened for the second month in a row.  This trend was evident across the MENA PMIs in March. Despite higher input costs, firms in Dubai’s private sector reduced selling prices in March by the most in five months, in a bid to support demand.  This would have increased pressure on already squeezed profit margins.  Businesses remained cautiously optimistic about the outlook for the next 12 months, with the future output index slipping slightly to 53.4 from 53.7 in February. 

Dubai PMI

Source: IHS Markit, Emirates NBD Research

Construction was the best performing sector in Dubai in March, with the construction sector index rising to 52.9 from 51.9 in February, the highest reading since July 2020.  Business activity rose sharply from February and new work increased as well, albeit at a slower pace. However, the sector continued to shed jobs, as it has since the start of the pandemic in March 2020.

Input costs increased at the fastest rate in over three years as shortages led to higher raw materials prices, but most firms appeared to absorb these higher costs as selling prices were only fractionally higher last month. Firms in the construction sector were less optimistic about their future output than they had been in February.

The travel and tourism sector index remained in contraction territory in March, but was slightly higher than in February.  Output declined, as did employment and new work, but new work contracted at a slower rate than in February.  Input costs rose even in this sector, but to a smaller degree than in construction and retail.  Firms continued to lower selling prices in March however.  Businesses were less optimistic about the outlook for the coming year than they had been in February, as sales slowed and lockdowns in key European source markets were extended.

Business conditions in the wholesale & retail trade sector improved modestly in March.  Business activity grew at the fastest rate this year, but new order growth slowed.  The employment index fell fractionally below the neutral 50-level for the first time this year.

Input costs increased sharply in March, but firms reduced selling prices at the fastest rate in five months, squeezing their margins further. Overall, firms in the wholesale & retail trade sector remain optimistic about the outlook over the next year, but the degree of optimism remains low by historical standards.

Dubai sector indices

Source: IHS Markit, Emirates NBD Research