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Dubai’s private sector activity slowed last month

Price discounting boosts demand with margins under pressure

Gulf News

Dubai: The non-oil private sector in Dubai faced a marginal slowdown in July, with the headline Dubai Economy Tracker Index (DET) declining to 54.9 from 56 in June.

Data showed that Dubai’s private sector output growth in July was at its slowest pace in three months. Growth moderated in each of the three broad sectors surveyed such as travel & tourism, wholesale & retail and construction.

As the output continued to improve, stimulated by a further expansion in new orders, business confidence towards future growth prospects remained strongly positive, but also softened to a three-month low.

“While firms reported higher output and new orders in July, this was on the back of extensive price discounting, with average selling prices falling at the sharpest rate since January 2017. At the same time, input costs continued to rise, further squeezing margins. Against this background, it is unsurprising that employment growth so far this year has been the softest on record,” said Khatija Haque, Head of MENA Research at Emirates NBD.

Sector wise data showed the construction sector index eased to 56.9 in July from 57.1 in June, but the sector outperformed both wholesale & retail trade and travel & tourism last month. Firms reported sharp rises in output and new work, and 22 per cent of firms surveyed in the sector increased hiring last month. The employment index rose to 56.6 in July from 52.6 in June, the highest reading since June 2015.

The sector faced rising input costs last month with this index rising from 50.6 in June to 56.3, the highest reading since value-added tax (VAT) was introduced in January. “This was mainly due to the higher costs of purchases. However, construction firms were largely unable to pass on these higher costs to customers, with only 8 per cent of firms reporting higher selling prices last month,” Haque said.

In the wholesale & retail trade sector, the index eased to 56.3 in July from the series high in June. As in other sectors, margins continued to be squeezed as input costs rose sharply, while selling prices were slightly lower on average last month. As a result, employment in the sector was broadly unchanged in July, despite the rise in new work. Stocks of inventories also rose at a slower rate than in May and June.

Travel & tourism sector growth softened in July to 54.5, the lowest reading so far this year. Output and new work increased in July but at a slower rate than in June, despite sharp price discounting by firms in the sector. The output price index declined to 47.4 last month, the lowest reading in over a year, while input cost inflation accelerated. However, per cent of firms reported hiring more workers last month, after average employment in the sector declined in June.

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