(Bloomberg) -- Dubai is deflating its economy to squeeze out growth.
The emirate's selling prices dropped last month at the fastest pace since February 2016, according to IHS Markit. Its Dubai Purchasing Managers' Index rose for a third month to 54.6 in October, staying well above the threshold of 50 that separates growth from contraction.
By contrast, IHS Markit's gauge tracking business conditions for the United Arab Emirates as a whole -- of which Dubai is a part -- was unchanged at its lowest level in almost a decade.
The rate at which prices are falling in Dubai is “underpinning the challenge of deflation that the U.A.E. has experienced this year,” David Owen, economist at IHS Markit, said in a report Monday. “A good proportion of panelists resorted to further price drops during October, in order to achieve higher sales, as has been the case for the past year-and-a-half.”
Although deflation has persisted in the Gulf for much of this year, made worse by a prolonged slump in the property market, consumer-price growth is stabilizing at a higher level in Saudi Arabia and has already turned positive some months in Qatar. But in the U.A.E., it's held around negative 2% for three months straight, approaching minus 3% in Dubai.
Read more: World's Only Deflation Outpost Gets Stuck in Property Malaise
The heavy discounting in the face of weak demand pushed up Dubai's new order growth, which improved for the first time in five months in October and resulted in greater hiring, according to IHS Markit. The rate of job creation strengthened to a 21-month high, it said.
“Cost pressures are weak though, while output levels are still rising at a sharp pace, suggesting that businesses are coping with the squeeze on their margins for the time being,” Owen said.
To contact the reporter on this story: Abeer Abu Omar in Dubai at aabuomar@bloomberg.net
To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Paul Abelsky, Amy Teibel
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