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| 10 January, 2017

Dubai’s private sector output and business optimism surged last month

Investors work in the Dubai International Financial Market September 13, 2010. REUTERS/Mosab Omar

Investors work in the Dubai International Financial Market September 13, 2010. REUTERS/Mosab Omar

REUTERS/Mosab Omar

Tuesday, Jan 10, 2017

Dubai: The Emirates NBD Dubai Economy Tracker Index (DET) rose to 55.9 in December, the highest reading since July as both output and new work grew at a faster rate than in November.

The output and new work sub-indices both registered readings over 60 last month, well above the neutral 50 level. Firms were also more optimistic about the coming 12 months, with the business expectations index rising to 74.5 in December from 70.8 in November.

“Consistent with what we’ve seen in the data through 2016, the rise in output and new work in December was partly driven by price discounting — the prices charged index fell to 47.7 last month from 49.4 in November, even as input costs rose. Employment was also broadly unchanged from November,” said Khatija Haque, Head of MENA Research at Emirates NBD.

Among the three sector surveys, the construction sector saw a solid rebound in December following fairly lacklustre growth in the prior two months. Travel & tourism and wholesale & retail trade continued to show strong expansion at the end of last year.

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“The rebound in construction sector activity in December is particularly encouraging after relatively sluggish performance for most of H2 2016. We expect construction will be a key driver of growth in Dubai in 2017 as preparations for Expo 2020 move up a gear,” said Haque.

The travel & tourism sector index eased from the November high, to 56.7 in December. Output and new orders showed very strong growth in December, but the expansion in output was at a slower rate than in November. Employment was largely unchanged in December in line with the trend we’ve seen throughout last year.

Firms in the tourism & travel sector were able to increase selling prices slightly in December on the back of strong demand. However input costs rose at a faster rate than output prices, so margins are still under pressure. Data showed that there is still a very high level of optimism in the sector, with the business expectations index rising to a new series high in December at 85.9.

The wholesale & retail sector index climbed to 56.4 last month from 56.1 in November, on stronger new work growth (63.3). While output rose at a sharp rate as well (59.0), it was slightly slower than in November.

However, the sector saw selling prices in December fall at the fastest rate since June, as firms cited greater market competition. Prices charged in this sector have declined for fourteen straight months, even as input costs have increased modestly over the same period. Firms were much more optimistic about the coming 12 months, with the business expectations index rising to 81.7 in December from 75.8 in November, and a new series high.

The construction sector index rose to 54.3 in December from 51.8 in November as output and new work rebounded strongly. The output index rose to 58.3 in December, its highest reading since May, while the new work index rose to 57.7 from 54.4 in November. While firms dropped prices charged for the third consecutive month in December, the extent of price cuts was slightly less than in November.

Employment also increased moderately in December as firms were slightly more optimistic about the prospects for order growth in the coming 12 months. Preparations for Expo 2020 are expected to move up a gear in 2017 and this is likely underpinning sentiment in the construction sector.

Data showed that average cost burdens increased in December and, although only modest, the rate of inflation was the fastest for seven months. Higher input prices and strong competition for new work contributed to a sustained squeeze on operating margins.

By Babu Das Augustine Banking Editor

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