|05 December, 2019

Growth in UAE business conditions falls; expectations improve over Expo 2020

The IHS Markit UAE Purchasing Managers' Index (PMI) slips from 51.1 in October to 50.3 in November

Image used for illustrative purpose. Skyscrapers along Sheikh Zayed Road at dusk.

Image used for illustrative purpose. Skyscrapers along Sheikh Zayed Road at dusk.

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Growth in the UAE’s non-oil private sector business conditions softened to the weakest in more than ten years in November, but companies are still optimistic for the year ahead, mainly due to Dubai Expo 2020. 

The IHS Markit UAE Purchasing Managers' Index (PMI), which provides an overview of operating conditions in the country, slipped from 51.1 in October to 50.3 in November, the lowest reading since August 2009.

According IHS Markit, companies in the UAE experienced the first monthly drop in new orders on record despite efforts to cut prices to boost demand amid "slowing market conditions." Payroll numbers, at the same time, dropped marginally.

"Slowing market conditions led customers to limit order volumes," IHS Markit said.

However, private organisations are still feeling positive about the year ahead, as they believe that the hosting of the Expo 2020 will revive domestic demand.

"Strong competitive pressure was again a key factor in the UAE PMI in November, with the headline reading falling to its lowest in over ten years," said David Owen, economist at IHS Markit.

"Price discounts that led to marked surges in demand earlier this year are  now ineffectual, illustrated by the first drop in new business since the survey began despite a sharp cut in charges," he added.

Owen, however, pointed out that the overall decline in sales was only marginal, adding that it offered a first hint that the non-oil private sector might be able to endure a "period of contraction."

IHS Markit also noted that companies have seen a "renewed increase in new export orders" as  global markets are reportedly doing better compared to the domestic one.

"Despite growth slowing, firms were more optimistic for the year ahead during November. Most panelists still expect output to rise over the coming 12 months, with the Expo 2020 remaining a key feature of the economic outlook," IHS Markit said.

Despite slowing growth in the private sector, other analysts have said that Dubai's economy is still on a positive track, posting a 2.1 per cent year-on-year growth in the first half of 2019.

In a research note, Khatija Haque, head of MENA research at Emirates NBD, wrote that real gross domestic product (GDP) growth for thefirst half of 2019 was "broadly steady" although slower than the series average of 3.3 per cent since the fourth quarter
of 2017.

Among the sectors, transport and storage posted a sharp acceleration in growth during the first half of the year, expanding 6.2 per cent year-on-year.

Wholesale and retail trade also grew at a faster rate, expanding by 3.3 per cent, while financial services and insurance dropped by -1.4 per cent.

(Writing by Cleofe Maceda, editing by Seban Scaria)


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© ZAWYA 2019

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