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Slower improvement in Dubai business conditions last December

This report contains the latest release of data collected from a monthly survey of business conditions in the Dubai non-oil private sector. Sponsored by Emirates NBD and produced by IHS Markit, the survey provides an early indication of operating conditions in Dubai.

Summary

Non-oil private sector growth in Dubai eased in December. Although total activity continued to rise at a strong overall pace, new business increased at the second-slowest rate in over two years and employment remained broadly unchanged. Inflationary pressures remained weak as input costs rose modestly and firms continued to cut their charges.

The seasonally adjusted Emirates NBD Dubai Economy Tracker Index – a composite indicator designed to give an accurate overview of operating conditions in the non-oil private sector economy – fell from November’s 55.3 to 53.7 in December. This was the second-lowest reading in over two years and below the historic average (since 2010) of 55.2, signalling relatively muted non-oil growth. Moreover, the average for the fourth quarter of 2018 (53.8) was the lowest of any quarter since Q1 2016.

All three of the key monitored sectors – construction, wholesale & retail and travel & tourism – registered slower improvements in business conditions in December. Travel & tourism continued to post the weakest overall growth (52.0), followed by construction (53.7) and wholesale & retail (54.2).

A reading of below 50.0 indicates that the non-oil private sector economy is generally declining; above 50.0, that it is generally expanding. A reading of 50.0 signals no change

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Business activity and employment

Total non-oil private sector output in Dubai rose for the thirty-fourth consecutive month in December. The rate of growth eased since November to the third-weakest in 2018, but was broadly in line with the historic survey average (since 2010). Construction continued to record the sharpest pace of expansion.

December data suggested improving productivity in Dubai as, although output rose strongly, employment was little-changed. This followed a fractional rise in staffing levels during November and declines in both September and October. Moreover, jobs contracted in the latest month in the construction and travel & tourism sectors.

Incoming new work and business activity expectations

Inflows of new business continued to rise in December, but at a slower pace. With the exception of October, growth was the weakest since October 2016. Rates of expansion slowed in all three major sectors monitored, most notably in construction. Meanwhile, the 12-month outlook for business activity dipped to a five-month low in December but remained relatively strong.

Input costs and average prices charged

Average input prices in the non-oil private sector rose only modestly in December, with the rate of inflation at a four-month low and below the long-run series average. At the sector level, a relatively strong increase in travel & tourism contrasted with a fall in input costs in the wholesale & retail sector.

With costs rising at a subdued overall rate, private sector companies cut their charges for goods & services for the eighth month running in December. The rate of reduction slowed compared with November, however.

Travel & Tourism | Business Activity and Employment

Growth of business activity loses momentum.

The rate of expansion of activity in Dubai’s travel & tourism sector slowed for the sixth time in seven months in December, following November’s brief acceleration. Though stronger than October’s ten-month low, the rate of growth was among the slowest registered since early-2016. The Business Activity Index posted at 54.3 in December, down from 57.5 in November.

Employment in the sector resumed a downward trend in December following November’s pause. Jobs have declined four times in the past five months.

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Travel & Tourism | Incoming New Work and Business Activity Expectations

New business inflows continue to rise solidly.

New work in the travel & tourism sector continued to rise in December. The seasonally adjusted New Business Index was only slightly down on November at 55.4 but remained below the levels seen in the first half of 2018, signalling further solid but unspectacular growth.

Firms in the sector remained strongly optimistic about growth prospects over the next 12 months. That said, sentiment slowed sharply from November’s record high, to the softest in eight months.

Travel & Tourism | Input Costs and Average Prices Charged

Input price inflation slows but remains solid overall.

Average input costs in Dubai’s travel & tourism sector rose for the fourteenth successive month in December, the longest sequence of inflation since the series began in March 2015. The rate of increase slowed from November (which was the second-highest on record) but was still the second-fastest in eight months.

In contrast to the trend for input prices, charges fell for a series-record sixth consecutive month in December. Firms reported competitive pressures. That said, the rate of reduction eased since November and was only marginal.

Wholesale & Retail | Business Activity and Employment

Strong rise in activity supports further job creation.

The seasonally adjusted Business Activity Index fell to 57.8 in December. This was the third-lowest reading in 2018, but only slightly below the long-run series average (59.0) and indicative of strong overall sales growth at wholesalers and retailers in Dubai. Firms reported successful marketing and promotional activity, and competitive pricing.

The sector also continued to create jobs in December. The rate of growth was unchanged from November’s ten-month high and broadly in line with the series average.

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Wholesale & Retail | Incoming New Work and Business Activity Expectations

New business growth eases but remains strong.

The wholesale & retail sector continued to record growth of new business in December. The rate of expansion was the third-weakest in over two years, but still strong overall. New business has risen every month since the series started with the exception of February 2016.

Retailers and wholesalers in Dubai remained strongly optimistic regarding sales expectations in December. Sentiment eased from November’s record high, but was still among the highest since the series began in March 2015. The Business Expectations Index registered 88.5, compared with a long-run average of 72.9.

Wholesale & Retail | Input Costs and Average Prices Charged

Input prices decline for first time since March.

Average input costs in the wholesale & retail sector declined in December. It was the first reduction since March, and only the fifth registered throughout the series history. That said, at 49.5 the Input Costs Index signalled only a slight decline.

December data signalled further discounting in the sector, with prices charged falling for the eighth successive month. The rate of reduction slowed from November’s near-record pace, but was still the third-fastest in nearly two years.

Construction | Business Activity and Employment

Construction growth eases from November record.

The rate of growth in construction activity in Dubai slowed in December, having previously hit a record high in November. The seasonally adjusted Business Activity Index fell to a three-month low of 61.5, but remained above its long-run trend level of 59.1 and signalled sharp overall growth.

Construction companies achieved further marked growth despite cutting staff during the month. Employment in the sector fell for the first time since February, and at the fastest rate since the series began in March 2015. Some firms linked lower staff to cost control efforts.

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Construction | Incoming New Work and Business Activity Expectations

Confidence wanes as new business intakes slow.

New projects at Dubai-based construction companies continued to rise in December. That said, the rate of expansion slowed sharply since November to the weakest since March. At 55.8, the seasonally adjusted New Business Index was below its long-run trend level of 57.5.

Slower growth of new work impacted confidence in December. Though positive overall, business expectations weakened markedly to the lowest since March. That marked a turnaround from the record levels of sentiment posted in both September and October.

Construction | Input Costs and Average Prices Charged

Construction firms cut prices at fastest rate since April 2017.

December data signalled only a modest increase in input costs in the Dubai construction sector. The rate of inflation slowed from November’s four-month high and was weak in the context of historic data.

Reflecting modest cost pressures and slower growth of new work, construction firms cut their prices for the fourth month running in December. Moreover, the rate of reduction was the sharpest since April 2017.