Positive outlook for manufacturing, construction firms in Dubai

The survey reported continued to support to the overall business confidence in Dubai during the past three months in spite of the seasonal slowdown during summer. It revealed that exporters are more optimistic than the overall business community about sales revenues, volumes and profits, underlining the dominance of export and re-exports in overall economic activity in Dubai.

The Composite Business Confidence Index (BCI) in Q2 2015 stands at 110.1 points, comparable to the index a year ago (112.2 in Q2 2014), but 20 points lower than the previous quarter, which preceded the summer slowdown. Sales revenue expectations for Q3 2015 also fall in line with the forecast a year ago, but weaker when compared to the previous quarter. Most parameters in the survey reflect a similar trend.

Businesses are also taking advantage of the slow summer months, focusing on capacity expansions and technology upgrades. Almost 77% businesses expect to invest in capacity expansion compared to 74% each in the first quarter of 2015 and Q2 2014. Technology upgrades are planned by 71% of the respondents in Q2 2015 as against 69% in the previous quarter and 66% a year ago.

Manufacturing firms are more hopeful on sales revenues, volumes, selling prices, net profits and new purchase orders while the outlook for hiring is strongest among service sector companies.

The survey also shows that SMEs have a modestly stronger forecast in comparison to large firms, as shown by their respective BCI scores of 111.6 points and 108.9 points. SMEs hold a stronger outlook on all four parameters in the index, i.e. volumes, selling prices, employment and profits.

The second quarter survey also reveals that expectations for sales revenues for Q3 2015 are as predicted a year ago, but weaker when compared to the previous quarter. The net balance for sales revenues is at a positive 29% for Q3 2015, the same level as in Q3 2014, but less than the 45% for Q2 2015. In terms of the proportion of respondents anticipating an increase in revenues, 47% foresee higher revenues during Q3 2015 versus 45% for Q3 2014 and 53% for Q2 2015.

Over 79% of the firms expected "no change" in their selling prices during Q3 2015. However, 12% of the participants anticipate an increase owing to an underlying rise in the cost of raw materials. A select proportion of respondents have indicated that they intend to increase selling prices to take advantage of good business prospects in the near term.

The seasonal dip in sentiments is underlined by the outlook for sales volumes as 21% of firms, mostly retailers, anticipate a decline due to lower customer footfalls, particularly as locals and residents tend to be on vacation during this period. On the other hand, 48% respondents expect higher volumes during Q3 2015, attributed to new projects and customers from both domestic and export markets and higher demand for certain goods and services during the festival season.

While 47% of the respondents expect higher net profits during the third quarter of 2015 driven by new orders and projects, 21% foresee weaker profits owing to slow market conditions. The outlook for hiring is moderate with 19% of all firms planning to increase their employee strength during Q3 2015 compared to 29% for Q2 2015 and 22% for Q3 2014.

A sector-wise comparison shows manufacturing being the most optimistic about sales volumes with 57% anticipating a rise and 25% expecting stability. However, 18% anticipate a decline due to slowing market conditions during the third quarter.

Within the services sector, construction firms are very optimistic with respect to volumes, with 66% respondents expecting an increase. Trading firms dealing in building material are also more confident about the third quarter compared to others. As expected, hotel & restaurants see lower demand in summer, with 32% anticipating a rise in volumes and 24% expecting a decline.

Competition continues to be the key concern as cited by 16% of the firms. Slowing market conditions have been cited as an impediment by 11% businesses, while rising costs of rental/leasing will be an obstacle as cited by 8% of the respondents.

DED conducts the quarterly surveys as an effective tool to measure the pulse of the business community and allow the government and the private sector to track and analyse major trends and issues that have a bearing on economic activity in Dubai.

A total of 503 companies in Dubai were covered in the Q2 2015 survey. The companies were asked to indicate if they anticipated an 'increase,' 'decrease,' or 'no change' in key indicators such as sales revenues, selling prices, volumes sold, profits and number of employees.

The survey gathers feedbacks from 2,000 respondents, divided between the four quarters of the year. The respondents come from all major residential communities in Dubai and cover males and females as well as nationals and expatriates, aged 18 to59.