Dubai’s economic recovery picked up pace in March, PMI data shows

Dubai: The positive momentum in Dubai’s economic recovery continued gain traction in March with gains in output and new orders according to the latest Purchasing Managers’ Index.

The Dubai non-oil economy saw a surge in input price inflation at the end of the opening quarter of the year, driven by mounting input shortages, restocking efforts by companies and an intensification of global supply delays.

“Global supply difficulties washed up on Dubai's shores in March, as the reduction in input availability led to the sharpest rise in prices for 28 months. This will constrain profit margins as competitive pressures and efforts to aid the recovery in demand led firms to lower output charges,” said David Owen, Economist at IHS Markit.

Output expansion

Despite the rising input costs and supply constraints, output continued to expand solidly, while new work picked up after a slight decrease in February.

Overall, firms also remained confident of a rise in business activity in the coming year as the economy recovers from the coronavirus disease (COVID-19) pandemic.

The PMI posted 51.0 in March, up fractionally from 50.9 in February. Positive contributions relative to the previous month came from the new orders and stocks of purchases indices, while the output, employment and uuppliers' delivery times sub-components provided slight negative directional influences.

At the sector level, construction and travel & tourism saw improvements to their headline readings in March, with the former recording by far the strongest growth across the three monitored industries. Construction firms saw the second-sharpest increase in output since the middle of 2019, as some respondents commented that easing COVID-19 restrictions allowed for project work to restart.

Across the whole non-oil private sector in Dubai, latest data signalled a rise in output for the fourth month running during March. This was supported by a renewed pick up in new orders. 

Rising optimism

The outlook for future business activity among non-oil firms remained positive in March, despite ticking down from February's five-month high. Panellists linked hopes of an improvement in output to the reopening of the economy from the COVID-19 pandemic and strengthening client demand.

Businesses raised their stocks of purchases again in March, after a five-month period of decline up to January. However, a number of firms reported facing shortages of inputs linked to wider global supply problems, which contributed to a further lengthening of suppliers’ delivery times.

With raw materials in short supply, input prices spiked higher at the end of the first quarter. The rate of input cost inflation accelerated to the quickest since November 2018. Despite this, firms continued to lower their selling charges in an effort to stimulate demand, and at the most marked pace for five months.

Efforts to contain costs meant that staff levels were reduced for the first time in 2021-to-date. That said, the fall in employment was only slight.

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