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Optimism dims as Dubai growth slows

Dubai - Private sector firms still expect a rise in activity in the coming 12 months, but the degree of positivity was only fractional, according to IHS Markit Dubai PMI survey report

Published: Mon 9 Nov 2020, 1:46 PM

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The survey revealed that businesses saw only a slight rise in new work, while job shedding quickened from September but remained softer than in the prior six months. — AP

The survey revealed that businesses saw only a slight rise in new work, while job shedding quickened from September but remained softer than in the prior six months. — AP

After a robust quarter of growth, business optimism about an eventual rebound from the slowdown caused by pandemic suffered a setback in October with Dubai’s private sector recording the slowest output growth in five months.

“With the recovery fading, and uncertainty building about the future impact of the pandemic, output expectations fell to the lowest on record in October,” says a purchasing managers’ index (PMI) survey.

However, private sector firms still expect a rise in activity in the coming 12 months, but the degree of positivity was only fractional, said the IHS Markit Dubai PMI survey report.

The survey revealed that businesses saw only a slight rise in new work, while job shedding quickened from September but remained softer than in the prior six months.

“Most notably, the degree of positive sentiment regarding the year-ahead outlook for activity fell to its lowest since this index began in April 2012,” said the report.

At 49.9 in October, the seasonally adjusted the PMI indicated that business conditions across the non-oil private sector were broadly unchanged over the month. “Falling from 51.5 in September, the reading also signalled an end to the run of growth observed throughout the third quarter of the year.” Job shedding also gathered pace but remained softer than during lockdown.

The International Monetary Fund has estimated that Dubai’s economy could shrink by 9.8 per cent this year, while S&P Global Ratings has predicted an 11 per cent contraction.

S&P said although Dubai’s economy is more diversified than that of most of its regional peers, it may take until 2023 for it to recover to 2019 levels due to the impact of the global Covid-19 crisis which forced the postponement of Expo Dubai 2020 to next year.

“Dubai’s large exposures to tourism and aviation place it in a relatively more vulnerable position to the effects of Covid-19... The indirect effect of weaker demand from Dubai’s neighbours will dampen Dubai’s trade, tourism, and real estate markets,” the rating agency said.

The HIS Markit PMI reading signalled an end to the run of growth observed throughout the third quarter of the year. “Businesses in Dubai reported the weakest rise in activity in the last five months of expansion during October, which was in part due to a softer - and only marginal - upturn in new orders. Some companies noted they were unable to expand further whilst markets remained subdued. Additional sector data showed falls in output in both travel & tourism and construction,” said the report.

David Owen, economist at IHS Markit, said after a robust quarter of growth for the Dubai non-oil economy, October data pointed to a more subdued picture as overall business conditions were left broadly stable.

“Businesses also showed weaker optimism towards the economic recovery from Covid-19, amid reports of weak demand and uncertainty about the future impact of the pandemic on activity and jobs. In fact, the overall level of confidence was the weakest in the series’ eight-year history,” said Owen.

While output levels declined in the construction and travel & tourism sectors, mostly due to a lack of new building projects and weak tourist numbers, growth in the wholesale & retail sector was the softest in five months, signalling a broad-based slowdown across some of Dubai’s key sectors, said the survey report.

While job numbers decreased across the private sector economy in October, the rate of contraction gathered pace from September, said the report.

Businesses often linked job cuts to cost-cutting measures. On the price front, latest data signalled a broadly unchanged level of expenses at the start of the fourth quarter.

Margins came under further pressure as output charges fell for the thirtieth month running, amid reports of firms offering discounts to clear stocks and improve sales, said the report.

— issacjohn@khaleejtimes.com



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