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Dubai PMI at three year high in July

Khatija Haque - Head of Research & Chief Economist
Published Date: 09 August 2022


The Dubai PMI rose to 56.4 in July from 56.1 in June, the highest reading since mid-2019. Business activity rose at a faster pace than in June. New work also increased sharply last month but slowed slightly from June. Employment in the non-oil private sector increased for the third month in a row, albeit very modestly.

Input cost inflation remained high in July although encouragingly was slightly weaker than in June. More firms (mainly in the travel & tourism sector) appear to be passing on higher input costs as overall selling prices were fractionally higher after 12 months of decline. 

Businesses remained optimistic about the outlook, but the degree of the optimism was lower than in June, except in the travel & tourism sector where the business expectations index reached an eight- month high.

Dubai PMI: Surging input costs are feeding through to buyers

Source: S&P Global, Emirates NBD Research

The travel & tourism sector was the strongest of the three sectors surveyed by S&P Global in July, although the sector index slipped to a three-month low of 56.9.  Activity and new work rose sharply last month and firms added workers at the fastest rate in a year. However, input costs surged last month, likely on the back of higher fuel prices, and firms raised selling prices for the first time since August 2021 and at the fastest pace in more than five years.  With USD strength eroding the competitiveness of the UAE’s tourism sector, firms may face softening demand especially from emerging markets in H2 2022. In July however, businesses remained very optimistic about their expected activity in the coming year.

The wholesale & retail trade sector index rose to 56.4 in July from 54.9 in June, buoyed by stronger growth in activity and new work. However, this appears to have come on the back of further price discounting and promotions, as average selling prices fell for the fourth consecutive month despite rising input costs. Stocks of inventories also declined as supplier delivery times increased in July after several months of improvement.

The construction sector continued to see sharp growth in activity and output, but new order growth remained relatively soft.  Higher raw material costs may be weighing on new work, although to a large extent firms in the construction sector have absorbed higher input costs rather than raise selling prices. Business optimism in the sector softened in July as interest rate hikes may prove a further headwind to demand in H2.

Overall the PMI survey data points to strong growth in Q2 2022 for Dubai, following 5.9% y/y GDP growth in Q1.  However, we expect growth to slow in H2 as the external backdrop weakens and higher interest rates and inflation curb domestic demand. We expect Dubai’s economy to grow by 4.5% for the full year 2022.