One of the drivers for Dubai economy's growth spike has been the performance by the travel and tourism sector. Retail too is doing its bit. Image Credit: Supplied

Dubai: Business conditions in Dubai maintained a ‘robust speed’ during June, expanding at the fastest pace since 2019, according to the latest PMI report from S&P Global. What this means is that businesses are showing resilience to cost inflation, the surge in fuel prices and knock-on effects on transport and logistics costs. There were also some job additions, but at a slower rate.

“Many firms are waving off price rises for now, and offering promotions where possible to combat strong market competition,” said David Owen, Economist at the consultancy, which tracks monthly performance by the private sector in key economies. “However, if cost inflation is sustained at a high level in the second-half of 2022, it will become increasingly difficult for firms to keep price increases at bay."

The PMI (Purchasing Managers Index) was at 56.1 for June against May’s 55.7, for a second monthly gain. Any score over 50 denotes expansion in business conditions and performance. This is the highest PMI reading Dubai recorded since June 2019.

"The Dubai PMI continued to trend upwards, reflecting further strength in new business and activity," said Owen. "Travel demand continued to support sales, and there was a renewed increase in new work in the construction sector."

Passing on costs

"The (Dubai) economy also faced the challenge of rising inflationary pressures, which led to the quickest increase in input prices since the start of 2018," said Owen. "The sharp uptick in global energy prices weighed heavily on businesses, with consumers also likely to feel the pinch on spending as fuel prices spike."

In sectors such as construction, the costs are already being passed on. Many consumer facing businesses are adding fuel price increases to the final bill. But if businesses find that they are booking higher orders and sales in the coming months, they will hold the line on the cost transfer.

According to S&P Global, "Despite the pressure to push rising costs onto their customers, non-oil firms continued to reduce their output charges in June. In fact, the rate of discounting quickened to the fastest since August 2020, as strong competition forced them to lower prices."

A confidence boost
Businesses in Dubai are 'increasingly confident' of a rise in output over the coming 12 months. "Confidence rose to the highest since last October, with around twice as many firms expecting growth compared to that seen in May," the S&P Global PMI report finds. "Survey respondents suggested that output projections were generally unfazed by rising cost pressures."