Business confidence and outlook for Q3 2019 improves, driven largely by trading and construction
New export markets and projects being launched ahead of Expo 2020 are energizing economic activity in Dubai, particularly in the trading and construction sectors, and businesses are confident of improved outcomes in the months ahead. The quarterly survey of Dubai Economy shows Composite Business Confidence Index (BCI) in the emirate improving 2.2 points to reach 114.9 in the second quarter of 2019, compared to 112.7 points in the same period of 2018, with respondents anticipating higher volumes and profits.
The survey also showed that 83% of the businesses in Dubai rated their situation as ‘good’ or ‘stable’ in Q2, 2018 while the others had to deal with a few obstacles, such as weak demand during the Ramadan season and increasing competition. The proportion of businesses foreseeing an improvement in the business situation has slightly increased from 45% for Q3, 2018 to 46% for Q3, 2019, while 43% expect stability to prevail.
Large companies continue to maintain stronger projections as compared to SMEs with Composite BCI scores of 118.3 and 109.9 points for Q3, 2019, respectively. As Dubai successfully promotes itself as a competitive source market, 22% of the firms look to exporting to new markets during Q3, 2019. The leading new markets for export diversification are Africa and Europe.
Commenting on the latest BCI scores, Khalid Al Kassim, Assistant Director General for Economic Affairs in Dubai Economy, said businesses in the emirate are being innovative and seizing opportunities in spite of a challenging global economic landscape. “Businesses in Dubai have been able to remain competitive and aim for the next level as a series of measures adopted by the government continue to enhance ease of business and create new economic opportunities.”
A comparison of expectations among key economic sectors reveal that the trading sector holds the strongest outlook for sales revenue, volumes sold, profits, hiring and new purchase orders as compared to the manufacturing and services sectors for Q3, 2019. Overall, 50% of businesses are looking forward to their revenues improving in Q3, 2019, chiefly on higher volumes, while 33% estimated stable revenues.
Projections for volumes has displayed a year-on-year increase, with the net balance rising from 29% for Q3, 2018 to 31% for Q3, 2019, supported by optimism surrounding the Expo 2020 as well as expectations of additional customers, new projects and improved market conditions. Expectations of increased volumes and revenues are also reflected on profit estimates.
For the upcoming quarter, while 79% of respondents intend to maintain their selling prices at the current level, 10% plan to increase prices. Hiring intentions have softened on a quarterly basis with the net balance decreasing from 13% for Q2, 2019 to 12% for Q3, 2019.
The trading sector is most confident about its prospects on sales volumes, selling prices, revenue, profits, hiring and new purchase orders as compared to the manufacturing and services sectors.
Within services, the construction segment is the most optimistic about volumes for Q3, 2019 with a net balance of 41% on account of rise in new projects and expected improvement in market conditions. In the trading sector, auto (spare parts) segment is most optimistic about volumes during Q3, 2019.
Exporters are more optimistic than the overall business community, with Composite BCI scores of 115.9 and 114.9 points, respectively. The exporting community has a stronger forecast than domestic-market oriented firms for most parameters evaluated in the survey. However, domestic-market oriented firms have displayed a marginally higher forecast for hiring.
Large companies are more optimistic than SMEs about their outlook with respect to expected selling prices, wage levels, volumes, hiring and new purchase orders. However, SMEs have displayed a marginally better forecast for revenue and profits.
In the coming 12 months, 30% of the firms intend to expand their current headquarters. Manufacturing firms are most optimistic about capacity expansion plans as compared to the services and trading firms.