Dubai’s private sector sees strong growth, but hiring remains dull

Growth was driven by increased output, which rose at the fastest pace in 40 months during May

June 11, 2018

Dubai’s non-oil private sector recorded strong growth in May on the back of increased output and new orders, the latest monthly survey by Emirates NBD has found.

The seasonally adjusted Emirates NBD Dubai Economy Tracker Index stood at 57.6 in May, up from 53.9 in April. The latest figure was the strongest recorded since April 2017.

In terms of sectors, wholesale and retail recorded an index reading of 58.3, followed by travel and tourism (57.3). At 54.6, down marginally from 54.9 in April, construction was the only sector to record softer growth in May, the report found.

Growth was driven by increased output, which rose at the fastest pace in 40 months during May, the report said. Business activity has risen continuously on a monthly basis since March 2016.

A sharp expansion in new orders led to rising output requirements in the sector.

The rate of growth of new orders accelerated to a 39-month high amid successful promotional activities and robust demand conditions, the report said.

But despite steep increases in activity and new work, new employment remained dull. Firms hired additional staff at only a “fractional pace” in May, the report stated.

Many respondents to the survey indicated that employment growth was restricted due to efforts to contain costs.

The report found that average cost burdens faced by non-oil private sector businesses continued to rise in May. However, the rate of input price inflation eased from April and was moderate overall.

Increased promotional activities alongside softer input cost inflation led firms to reduce their output charges. Reports of greater competition in the construction sector led firms to reduce selling prices at a solid pace, the report added.

Khatija Haque, head of MENA Research at Emirates NBD, said: “The sharp rise in the Dubai Economy Tracker index supports our view that growth in Dubai will be faster this year relative to 2017, but the headline reading masks the squeeze on profit margins which is also evident in the survey data.

“Firms, particularly in the wholesale and retail sector, cut prices aggressively to boost their output and new orders last month.”

Looking ahead, the report found that positive sentiment towards future growth prospects reached a series-record high in May.

“New project wins, Expo 2020 and forecasts of robust demand underpinned business confidence,” it said.

Dubai’s economic growth slowed last year, with gross domestic product growing 2.6 per cent to Dhs389bn in 2017 compared to a growth rate of 2.9 per cent the previous year.

The emirate has since announced several measures to boost business confidence and economic growth.

Earlier this year, it was announced that government fees would not be increased for the next three years as businesses in the country absorb higher costs linked to the introduction of a 5 per cent value added tax.

Dubai govt proposes fee waivers, mortgage law, SME incentives to boost economy

Last week, the Dubai Executive Council also announced that private schools in Dubai will not be allowed to raise their fees during the next academic year.

Other measures approved included the slashing of market fees imposed by Dubai Municipality from 5 per cent to 2.5 per cent, the scrapping of 19 fees related to the aviation industry to attract Dhs1bn ($272.2m) of foreign investment and the waiving of a 4 per cent late payment fee on property registration for 60 days.