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Abu Dhabi, UAEWednesday 12 December 2018

Dubai's private sector economy eases in March but remains in growth

But employment decreases for the first time since February 2017

The UAE announced relaxing of rules that will now allow for 100 per cent FDI in a bid to spur foreign direct investment flows. Satish Kumar / The National
The UAE announced relaxing of rules that will now allow for 100 per cent FDI in a bid to spur foreign direct investment flows. Satish Kumar / The National

A key gauge of Dubai's non-oil private sector economy eased slightly in March to the lowest increase in four months, but it remained in growth territory as business conditions improved.

But employment slipped into contraction for the first time since February 2017, as squeezed margins took toll on jobs.

The seasonally adjusted Emirates NBD Dubai Economy Tracker Index – a monthly composite indicator designed to reflect business conditions – slipped to 55.3, down from 55.8 in February. A reading above 50 suggests the non-oil economy is growing, while a reading below 50 suggests a contraction.

The March figure for the overall economy of the emirate indicated a marked expansion that was in line with the historical average. Growth was also recorded across all three sub-sectors monitored in the survey, led by travel and tourism which ended March at 56.7, followed by wholesale and retail at 56.3 and construction at 53.2.

“While the Dubai Economy Tracker fell to a four-month low … it remained firmly in expansionary territory, with travel and tourism the outperformer,” said Daniel Richards, the Middle East and North Africa economist at Emirates NBD.

“We anticipate faster growth in the Dubai economy this year, bolstered by ongoing infrastructure projects and greater government spending.”

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Dubai, which has announced record expansionary budget this year, is preparing to spend billions of dollars to complete Expo 2020-related projects. The commercial and tourism hub, which is expected to receive millions of visitors during the six-month global fair, is witnessing an improvement in business sentiment as its economy recovers after a three-year oil price slump.

Non-oil private sector companies noted a sharp output growth during March, but at a slower rate than that seen in the previous two surveys. According to anecdotal evidence, strong inflows of new orders were linked to rising business activity, the Emirates NBD survey noted.

Successful promotional strategies helped Dubai companies to continue to generate strong growth of new work in March. The rate of expansion during the latest survey was broadly in line with the average seen over the last two years.

Despite easing to a seven-month low in March, business confidence towards future growth prospects remained strongly positive overall.

“Optimism was underpinned by new project wins and an expected upturn in economic conditions,” the survey said.

In terms of inflation, average cost burdens faced by the non-oil private sector firms fell for the first time since February 2016. The rate of decline, however, was fractional overall. Prices charged also dropped at a moderate pace in March, ending a three-month sequence of inflation. That being said, companies continue to offer price discounts in order to bolster demand.