Local Business

Dubai economy continues to grow in May, but at slower pace

muzaffarrizvi@khaleejtimes.com Filed on June 9, 2021
After posting a 17-month high of 53.5 in April, the seasonally adjusted IHS Markit Dubai Purchasing Managers' Index fell back to 51.6 in May. However, this still signalled the second quickest improvement in operating conditions for 10 months. — File photo

New order growth softens from April's recent high; Output expands at slowest pace for six months; Worst supply chain delays since April 2020

The Dubai non-oil private sector economy continued to expand in May, but the rate of growth cooled off from April's robust level, latest PMI data suggests.

The headline IHS Markit Dubai Purchasing Managers' Index (PMI) noted that output and new business both grew to a lesser extent, while there was a renewed decrease in employment.

“After rising for the first time in three years in April, output charges declined in the latest period, as firms sought to boost their sales whilst cost pressures remained weak,” according to the PMI.

Seasonal adjustment

After posting a 17-month high of 53.5 in April, the seasonally adjusted IHS Markit Dubai Purchasing Managers' Index fell back to 51.6 in May. However, this still signalled the second quickest improvement in operating conditions for 10 months.

Four of the five sub-indices of the headline PMI provided a weaker contribution than in April, with suppliers' delivery times the exception. The largest drops were recorded by the output and new Orders Indices, which both decreased by 3.8 points over the month.

"After rising for three months in a row, the Dubai PMI slipped from 53.5 in April to 51.6 in May, to signal a more modest improvement in non-oil business conditions,” David Owen, Economist at IHS Markit, said.

He said both output and new orders rose at weaker rates, although April's data was the strongest seen since late2019.

"The slowdown led firms to reduce their workforce numbers in May, but the overall rate of job losses was only marginal. Price pressures on inputs remained weak, allowing firms to decrease their selling prices after recording the first uptick in three years in April," Owen said in a statement to Khaleej Times on Wednesday.

Construction takes the lead

Output in the non-oil economy increased for the sixth month running in May, but the rate of growth slowed to the weakest seen in this sequence. Surveyed businesses noted that work on ongoing projects had helped to offset a slowdown in new order growth.

Construction was the only monitored sector to see a faster rise in output during the month, with wholesale and retail seeing a slower expansion and travel and tourism registering a renewed decrease in activity.

New business rose only modestly during May, after expanding to the greatest extent for one-and-a-half years in April.

Travel and tourism yet to pick up

Travel and tourism was again the weakest of the monitored sectors, as new work declined for the fourth time in five months. Softer rises in both output and new orders led companies to reduce their staffing levels in the latest survey period.

The fall in employment was the second recorded in three months, but only slight overall. Input purchases and inventories rose at the slowest rates since February, as stronger demand pressure was partly offset by efforts to run down existing stocks.

Vendor performance deteriorated for the fourth successive month in May, amid reports that the pandemic had caused further disruption to input shipments. Notably, the rate at which lead times lengthened was the fastest since the record set in April 2020.

Input prices picked up for the fourth month in a row, but the overall rate of inflation weakened to just a marginal pace. As a result, there was a renewed decrease in output charges, after firms raised their prices for the first time in three years during April. According to panellists, discounts were offered to finalise orders and win new clients.

Promising H2 ahead

Atik Munshi, managing partner at Enterprise House, said the economy of any country is a package of different sectors. At any point of time, some sectors will perform better than the others while some may even face a downturn.

“Though the May 2021 PMI for UAE may show lower points compared to the previous month it cannot be considered alarming as such bouts happen due various reasons. Traditionally summer months in UAE are relatively slower for business,” Munshi told Khaleej Times on Wednesday.

“We have seen a significant upturn in the real estate sector in Dubai and UAE where transactions of billions of dirhams have been exchanged. Such funds will be infused into the economy. It will take some time for these funds to percolate into the economy which in turn will lubricate other business sectors.

“I am of the view that the later half of 2021 or the 3rd quarter and the 4th quarter would show much positive results as the general market sentiment has improved in UAE,” he said.

The headline IHS Markit Dubai Purchasing Managers' Index is derived from individual diffusion indices which measure changes in output, new orders, employment, suppliers’ delivery times and stocks of purchased goods.

The survey covers the Dubai non-oil private sector economy, with additional sector data published for travel & tourism, wholesale & retail and construction.



Muzaffar Rizvi

Business Editor/News Editor of Khaleej Times is a well-connected journalist and an economic and financial commentator. He has been in the mainstream journalism since 1997, covering the UAE's economy and key sectors. He holds a post-graduate degree in Economics and has won many awards for authentic and insightful reports on global and regional businesses and economic trends.

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