Dubai’s non-oil business growth picks up but still weak

Business activity across Dubai’s private sector rebounded modestly in May, up from an 18-month low recorded during April, a new survey showed.

According to Emirates NBD’s Dubai Economy Tracker, there was slightly more new work and a modest rate of job creation last month with a positive business outlook maintained.

The seasonally adjusted Emirates NBD Dubai Business Activity index edged up to 57.6 points in May, from 57.2 in April.

It remained well above the 50.0 threshold that separates growth from contraction but this still signalled a slower growth path than the peak seen at the start of this year.

Of the three key sub-sectors monitored by the survey, construction was the best performing in terms of output and employment growth. The growth was mainly due to a sharp increase in new development projects.

Wholesale and retail experienced a moderation in activity while travel and tourism under-performed to a lesser extent in May.

Although the May survey indicated a slight acceleration in Dubai’s business growth, it was still the second weakest over the last 37 months.

Private companies polled also noted that there was intense competition for new work and a more subdued appetite for spending among clients. An exception to this was the construction sector, where new work increased at a sharp and accelerated pace.

“May’s improvement in the Dubai Economy Tracker is very encouraging as it illustrates the resilience of the Dubai economy in the face of ongoing headwinds such as the strong dollar,” said Tim Fox, chief economist at Emirates NBD.

“To our mind it appears to be consistent with other tentative signals that suggest that Q1 may have been the low point for growth during the year. However, it is clear that businesses remain concerned about the outlook and with US interest rates likely to rise in H2 there is some basis for confidence to be guarded.”

The tracker noted that respondents are more cautious of their growth prospects this year as business activity remains well below the trend seen in the last three years.

The degree of positive sentiment towards future business activity was also the least optimistic since the index began in early 2012.

Dubai is one of the most diversified economies in the Gulf as it draws on its strength of being an aviation and tourism hub as well as a trading centre in the region.

However, there have been concerns about oil price volatility slowing government spending, in turn dampening private sector sentiment in the emirate.