Businesses in the emirate see market conditions continuing to improve in 2022
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Growth in Dubai’s non-oil private sector economy was stifled by the Omicron wave of Covid-19 in January, with the latest PMI data signaling a much weaker increase in new business after December’s 29-month high.
Supply chain challenges and pricing pressures also persisted, although businesses continued to see a strong recovery in activity following the easing of austerity measures.
The seasonally adjusted IHS Markit Dubai Purchasing Managers’ Index (PMI) fell for the first time in four months, from 55.3 in December to 52.6 in January. The index was nevertheless above the neutral bar of 50.0 for the fourteenth consecutive month, indicating a solid recovery of the economy in the whole of the non-oil private sector.
Production levels continued to rise at a healthy pace in January, with companies commenting on further improvement in economic conditions following the pandemic. The expansion was led by a sharp further recovery in construction output, which was the strongest since mid-2019. At the same time, slower expansions in the wholesale and retail trade and travel and tourism sectors meant that the overall increase in non-oil activity was slightly weaker than in December.
“After a strong final quarter of 2021, Dubai’s non-oil economy lost momentum at the start of the year, amid a much more moderate increase in new work volumes that businesses hope will be largely a jolt due to Omicron wave Despite slowing sales growth, business activity continued to grow at a healthy pace, although this could be further impacted in the coming months if demand does not recover quickly,” said David Owen, economist at IHS Markit.
The latest data showed only a slight increase in new orders in January. Several firms said the rapid rise in Covid-19 cases linked to the Omicron variant had led to lower customer demand, while others suggested stiff competition was weighing on growth. Weaker expansions were recorded in all three sectors monitored, but wholesale and retail businesses saw the greatest loss of momentum.
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As a result, companies were less confident for the year ahead as production expectations fell to the lowest since last May. Efforts to hire new employees were also less frequent than in December, resulting in an overall employment level unchanged.
Owen said businesses were showing further signs of strained capacity as delayed freight arrivals and growing inflationary pressures limited inventory levels and led to a further increase in backlogs. Higher cost loads resulted in a much smoother and only marginal reduction in selling costs.
“Going forward, businesses in Dubai expect market conditions to continue to improve as the pandemic will hopefully have a more limited impact until 2022. However, the latest data indicates that the economy is not yet immune to further waves and could also face further disruptions on the supply side,” Owen added.