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Khatija Haque - Head of Research & Chief Economist
Published Date: 11 July 2021
The Dubai PMI declined for the second month in a row to 51.0 (from 51.6 in May). The headline index indicates that while business conditions in Dubai’s private sector improved in June, the rate of improvement was the slowest since March. Both output and new work increased at a softer rate in June than in May, with firms citing higher raw material costs and shortages as well as the impact of travel restrictions weighing on the recovery in activity and new work.
Input costs rose at the fastest rate since March and firms passed some of the increase in costs onto buyers – selling prices rose for the second time in three months, albeit only modestly. Meanwhile suppliers’ delivery times lengthened for the fifth month in a row.
On a more positive note, private sector jobs increased in June, the second increase in three months. Firms were also more optimistic about their future outlook in June than they were in May, although the overall level of optimism remains low relative to the series history.
Source: IHS Markit, Emirates NBD Research
The travel & tourism index slipped to 50.5 in June from 51.0 in May, as travel restrictions in key tourism markets led to a decline in new work last month. However, output did increase slightly and firms in the sector hired new workers at the fastest rate since November 2019. Input costs in the travel & tourism sector increased in June and this was passed on through higher prices charged to customers.
The construction sector index declined to 50.9 in June from 51.8 in May, the lowest reading since January 2021. Output/ business activity increased at a solid rate but the pipeline of new work declined. Nevertheless, firms in the construction sector hired more workers for the first time since February 2020, and firms were more optimistic about the outlook over the coming 12 months. While input costs in the construction sector rose for the seventh month in a row, firms reduced selling prices in a competitive environment.
The wholesale & retail sector index fell to a 13-month low of 51.0 in June, as output and new work growth slowed. Firms reduced selling prices even as input costs rose for the fifth month in a row, putting further pressure on margins. Stocks of inventories declined as suppliers took longer to deliver goods ordered. Employment in the wholesale & retail sector declined in June, in contrast to the other sectors surveyed.
While we remain optimistic that growth will accelerate in H2 2021, this is largely dependent on external factors including the spread of the new Covid-19 variants and their impact on travel restrictions, as well as how quickly supply shortages can be addressed. We retain our UAE non-oil sector GDP forecast of 3.5% in 2021.
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