Dubai’s private sector growth rebounds in November
Margin pressures rise on price discounting and rising input costs
Dubai: The Dubai Economy Tracker (DET) Index recovered from a two-and-a-half year low recorded in October, to 55.3 in November, signalling a strong rebound in private sector economic activity.
The recovery was underpinned by a strong performance in the construction sector, although the wholesale & retail trade and the travel & tourism indices also improved last month.
Data showed output and new work increased at a markedly faster rate in Dubai in November, although this was likely due to aggressive price discounting. Selling prices declined the most since February 2016 as nearly 17 per cent of firms said they had cut selling prices last month.
“This [DET Index] marked the strongest reading in five months, and something of a recovery following the October reading, which was a slump to the lowest level since March 2016. Nevertheless, the index remains shy of the 2017 average (56.0), and there remain weak points within the data,” said Khatija Haque, head of Mena Research at Emirates NBD.
Margin squeeze
The price discounting was recorded across all sectors even as input costs rose at a faster rate than in October, increasing the margin squeeze on businesses, particularly in the wholesale & retail trade sector.
Employment in Dubai’s private sector was broadly unchanged in November, after declining in the prior two months. Firms increased their pre-production inventory in November but only modestly.
This [DET Index] marked the strongest reading in five months, and something of a recovery following the October reading, which was a slump to the lowest level since March 2016.
The average value of the DET Index in the year to November is 55.2, slightly lower than the average for the same period last year.
“Last month, we adjusted our forecast for the UAE non-oil sector growth down, and revised our oil sector growth forecast higher to take into account the recent data. The overall forecast for the UAE remains unchanged at 2.2,” Haque said.
“However, as Dubai’s economy is almost entirely non-oil, our growth forecast for the emirate was revised lower to 2.8 per cent, the same growth rate recorded in 2017.”
Construction shines
Sector-wise, construction was the top performer, with the index rising to 57.5 in November, its highest since April 2017, as output surged to a record high and new work growth accelerated from October. However, even in this sector, average selling prices declined for a third straight month in November. despite the fastest rise in input costs since July.
Employment in the construction sector increased the most in three months in November, and average job growth in the sector this year has been stronger than in 2016 and 2017.
Business optimism about future output remains high, with Expo 2020 Dubai projects expected to drive output growth in the coming year.
The steepest price discounting was reported in the wholesale & retail trade sector, with the sector’s index touching 55.4 in November, up from 53.7 in the previous month, as both output and new orders rose at a faster rate than in October. Additionally, the price discounting was the steepest since the first quarter of 2016.
Lack of pricing power
“The severe margin squeeze highlights the lack of pricing power on the part of firms in this sector, as the strong dollar continues to erode competitiveness, and consumers appear to be increasingly price sensitive,” Haque said.
The travel and tourism sector index rose to 52.8 in November as both output and new work increased sharply. However, prices charged declined the most since June 2017, with this discounting likely driving the recovery in new work and output. Businesses cut selling prices in November even as input costs rose at their fastest pace since January.
Despite recent weakness in the sector, businesses were more optimistic than they have ever been about their future prospects. Eighty-six per cent of firms expected their output to be higher in a year’s time than today, with many citing increased marketing efforts to drive future output growth.