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Daniel Richards - MENA Economist
Published Date: 13 July 2022
The headline PMI reading for Dubai rose to 56.1 in June, up from 55.7 in May. This marked a three-year high for the index, indicating a robust expansion in the local non-oil economy. The pace of growth in output moderated slightly compared to the previous month but remained comfortably above the series average, while new work grew at an even faster pace (highest reading since July 2019), boding well for output over the next several months. Business optimism saw a substantial improvement, rising to the highest level in eight months.
Source: S&P Global, Emirates NBD Research
Nevertheless, the strong headline readings once again obscure some of the more challenging conditions revealed by the PMI survey, in particular the inflationary pressures which continue to weigh on firms’ margins. Input costs accelerated at the fastest pace since January 2018, with record increases in construction and wholesale & retail. Firms continued to cut output costs in a competitive environment, meaning diminished margins and ongoing pressure to do more with less – as such, the employment component of the index was only marginally above the neutral 50.0 level.
The travel & tourism sector continued to outperform the other two sectors covered by the survey, although its pace of growth did moderate from May. The headline reading, output, and new work were all slightly lower in June than in the previous month, but all three still indicate a robust pace of growth. Some of this is being supported by ongoing discounting by firms as output prices declined at a faster pace than seen in May even while rising fuel costs impacted their input prices. While a strong dollar presents a headwind to the tourism sector this year, we expect that it will continue to rebound from the pandemic crisis with strong growth over the period. This view appears to be shared by the survey respondents, as business optimism climbed to a seven-month high.
The headline reading for wholesale & retail rose compared with May, and output accelerated for the fourth month running. Input costs were at a record high but prices charged declined at the fastest pace since July 2021. This helped to support new order growth which accelerated from May, but employment was broadly static on the previous month.
Construction’s headline reading picked up again in June after it dipped in May, with output accelerating and new orders turning positive once more after declining the previous month. Business expectations saw a marked improvement on the back of this, even as firms continued to cut output prices while input costs accelerated at a record rate. Employment saw modest growth for the second month running.
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