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Khatija Haque - Head of MENA Research
Published Date: 09 July 2018
The headline Dubai Economy Tracker Index (DET) eased to 56.0 in June from 57.6 in May. Both output and new orders increased at a sharp rate last month, indicating strong demand, which was evident across the three key sector surveys last month. However, the rate of increase was slightly softer than in May. The average DET reading for H1 2018 was 55.8, lower than the reading for H1 2017 and indicating a slightly slower rate of expansion so far this year.
Employment in June was broadly unchanged (50.2), despite the strong growth in output and new work over the last two months. Input costs inflation eased in June, but looking at the first half of the year in total, producer inflation was higher than in H1 2017, with most of the increase likely due to VAT. These higher costs have not been fully passed through to consumers. In June, selling prices were marginally lower on average, and this was the trend over H1 2018 as well.
Businesses remained highly optimistic about their future order growth in June, with the business optimism index rising to 86.1 in June, the highest reading on record. Firms cited “solid business conditions”, marketing initiatives and a “strong pipeline of new work” as reasons for optimism.
The sector surveys showed a marked improvement in business conditions in the construction sector in June, while momentum in the travel & tourism sector slowed. Activity in the wholesale & retail trade remained strong on sharp price discounting.
Source: IHS Markit, Emirates NBD Research
The construction sector index rose to 57.1 in June from 54.6 in June, reflecting stronger growth in output and new work last month. Employment in the sector increased as well at a similar rate to May. Input costs were broadly unchanged from May, providing some relief for businesses. Although there was still marginal discounting in terms of selling prices last month, it was less pronounced than in May. Business optimism in the construction sector also rose to a record high of 89.1 in June, underpinned by the strong pipeline of work.
The headline index for the sector rose slightly to 58.6 in June, the highest reading since October 2017, signalling a strong rate of expansion. The growth in output and new work accelerated from already high levels in June, although this was partly due to further price discounting. The selling price index remains well below the neutral 50.0 level for the second month in a row, despite higher input costs. Employment in the sector was only marginally higher last month, despite the strong rise in output and new work.
The travel & tourism sector index declined to 54.9 in June, the lowest reading since December 2017. While output and new work did rise sharply last month, the headline index was weighed down by a decline in employment in the sector. The employment index fell to 48.8, signalling the most job losses in this sector since records began in March 2015.
While selling prices were unchanged last month on average, input costs continued to rise, squeezing margins further. Nevertheless, firms were highly optimistic about their output in 12 months’ time, with the future output index rising to a record high, consistent with the whole Dubai survey.
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