Dubai PMI shows first improvement in business conditions since February

Dubai’s non-oil private sector saw an improvement in business conditions in July (compared to June), the first improvement in five months.  The Dubai PMI rose to 51.7 from 50.0 in June, and was the highest reading since December 2019.  The main driver was a solid rise in output as lockdown restrictions were eased further and consumer demand recovered.  New work also increased at the fastest rate since November.  Firms noted that the re-opening of tourist destinations and the resumption of international flights helped to boost sales last month. 

However, the pick-up in output and new work may have been supported by more extensive price discounting – selling prices declined at the fastest rate in eight months.  Employment in the non-oil private sector also declined for fifth month in a row, as firms cited weak cash flows and the need to curb total costs.  

While firms were on average optimistic about the next year, the degree of optimism softened from June as some panelists noted that the recovery from the pandemic might be slower than previously thought.

Dubai PMI components

Source: IHS Markit, Emirates NBD Research

The sector surveys showed business conditions in the wholesale & retail trade and construction sectors improving again in July.  The travel and tourism sector remained in contraction territory last month but business activity rose for the first time since February.

The wholesale & retail sector index rose to 54.3 in July, the second consecutive month of improving business conditions in the sector.  Output rose sharply m/m as firms reported increased consumer footfall and improving market conditions.  However, employment in the sector continued to decline as some shops closed and others continued to prioritise cost cutting. While input costs rose relatively sharply for the second month in a row, selling prices were largely unchanged as firms sought to remain competitive.

The construction sector index rose to 53.0 in July from 50.1 in June, as output increased and new orders rose for the first time this year.  However, firms in the sector discounted prices at the sharpest rate since February 2017 in order to secure new tenders. Employment in the sector declined only slightly last month, and firms remained optimistic about their output in twelve months’ time.

There were signs of recovery in the travel & tourism sector in July.  Although the sector index was still in contraction territory at 48.3, it was the highest reading since February.  The improvement was largely due to the first increase in business activity in the sector in five months although this was on the back of extensive price discounting.  Firms reported that demand was slow to recover after Dubai re-opened for tourists, but they were more optimistic about the outlook for next year.  Job-shedding in the sector continued at a relatively sharp rate, with the employment index at 44.4, only slightly better than the June reading, as firms continued to reduce costs in the face of lower output prices.

Travel & tourism sector index

Source: IHS Markit, Emirates NBD Research

The Dubai PMI survey data signals a slow but steady recovery in economic activity over the last two months, as restrictions on movement and business activity have been progressively eased.  However, the recovery in activity has not been sufficient to prevent firms continuing to lay-off workers as they seek to reduce costs, as cash flows remain weaker than usual.  Output likely remains below pre-coronavirus levels, as the modest improvements in June and July were probably insufficient to offset the contraction in March through May.