Dubai’s non-oil private sector posts its best performance in 16 months

Dubai’s non-oil private sector posted its best performance for 16 months in December, latest survey data signalled, as companies continued to report rapid improvements in sales and activity.

Aided by softening cost pressures which allowed firms to offer greater discounts to customers, new order growth accelerated to the second-quickest since mid-2019.

Meanwhile, stronger demand drove an uptick in confidence towards the next 12 months and a faster rate of hiring. Inventory growth stayed robust, but slowed amid logistical challenges.

The headline S&P Global Dubai Purchasing Managers’ Index (PMI) 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.

At 57.7 in December, the headline PMI rose from 56.8 in November and posted well above the 50.0 mark that separates growth from contraction.

In addition, the reading was the highest since August 2022 and the second-highest in four-and-a-half years.Steering the headline index was a strong mark-up in its largest sub-component: the New Orders Index, which indicated a sharper increase in new business intakes in December.

Like the PMI, new order growth was the second-fastest recorded since June 2019, with around 30% of survey members noting an improvement.

The greatest upturn in sales was seen in the wholesale & retail sector, though growth was also rapid in travel & tourism.

CommentDavid Owen, Senior Economist at S&P Global Market Intelligence, said: “The Dubai non-oil economy ended 2023 on a high according to PMI results, as the headline index rose to a 16-month peak and indicated a substantial improvement in business conditions in December.”

“Firms enjoyed a rapid increase in new work, the second-quickest since the middle of 2019, confirming the strength of market demand across the emirate as we enter the new year.

“The improvement led to a modest pick-up in business expectations, following a drop in November when firms cited intense price competition as a noteworthy risk for 2024. Competition for market share is still a concern, with survey members indicating that this is partly driving a fall in selling charges. Nevertheless, the softening of cost burdens in December should help to limit margin pressures.”

Output levels subsequently rose at a marked pace in December, with the expansion broadly unchanged from one month ago.

Panellists also highlighted greater efforts on marketing and productivity as workloads intensified.

Dubai non-oil firms often related an increase in new work to improving market conditions and greater client demand, which was in turn partly linked to a drop in output charges.

Selling prices decreased at a solid pace and the fastest since June, which some respondents attributed to a need to stay competitive.

Discounting efforts were supported by a softening of input cost pressures, as improving supply lines and lower material prices allowed businesses to negotiate lower vendor fees.

Reports of increased wages and higher input demand meant that overall expenses still ticked higher, but at a subdued pace. At the same time, there was evidence that supply chain hold-ups resulted in a softer improvement in delivery times compared to November.

After slipping to a seven-month low, the latest survey data signalled a recovery in business expectations towards the year-ahead outlook at the end of 2023.

In fact, the level of optimism was one of the strongest recorded since prior to the COVID-19 pandemic. With confidence and sales improving, non-oil companies raised their workforce numbers further in December, citing efforts to expand operations and fulfil output requirements.

Job creation quickened to a four-month high and was broadly in line with the series average. Stockpiling also remained strong following rapid growth earlier in the fourth quarter, although the pace waned as some firms looked to optimise their inventory management.