The UAE’s non-oil private sector maintained its upward trajectory in February, growing at a pace close to December’s nine-month high. Growth last month was driven by a notable rise in new business that fuelled a substantial upturn in output. In addition, stocks of inputs increased solidly but labor constraints and delays in payment processes led to a further rise in backlogs of work.
The seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) stayed at 55.0 in February, signaling a sharp improvement in the health of the non-oil economy. The index was slightly higher than its long-run average of 54.4.
Meanwhile, the Dubai PMI fell to a three-month low of 54.3 in February, down from 55.3 in January, indicating a slower improvement in the health of the non-oil sector. Nonetheless, the overall improvement remained solid, driven by robust expansions in new orders and output.
“February proved to be another solid month for UAE non-oil businesses, with the latest survey data indicating further strong upturns in new orders and output. A PMI reading of 55.0 suggests that growth has remained relatively steady since its recent high at the end of last year,” stated David Owen, senior economist at S&P Global Market Intelligence.
Business activity grows despite competition concerns
Business activity growth gained momentum and was stronger than its historical trend in February. According to monitored firms, output was ramped up in response to rising levels of new business. Around 29 percent of the survey panel reported higher activity than in January, compared to 5 percent where activity had fallen.
However, concerns about domestic and international competition posed a significant challenge to business confidence across the UAE’s non-oil private sector, fostering a degree of caution regarding price hikes as firms sought to boost sales. However, these efforts were partially hindered by an uptick in cost pressures for the first time in seven months.
“Firms continue to feel the pressure of intense competition, which has capped price increases. Nevertheless, growing cost pressures resulted in a slight acceleration in selling price inflation in February,” added Owen.
Improving market conditions boost demand
Improving market conditions, advertising efforts and restrained output price pressures reportedly boosted demand levels in February. Order book volumes rose at a sharp pace, despite losing momentum since January.
“Businesses are eager to secure new work, which contributed to a rapid accumulation of backlogged orders,” he added.
On the other hand, some firms in the UAE’s non-oil private sector signaled that competition from domestic and foreign sources had dampened growth. Order book growth led to an increase in input purchases midway through the first quarter, albeit one that was the softest for three months. Inventories of inputs were also raised, and to the greatest degree in just over a year.
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Challenges facing the UAE’s non-oil private sector
Concerns about international competition and capacity issues remained a key obstacle to firms when assessing their outlook. Approximately 10 percent of UAE firms expect to increase their activity over the next 12 months, which is much lower than the long-run trend. Nevertheless, sentiment remained positive and even ticked up from January’s recent low.
Meanwhile, input costs in the non-oil sector rose at a quicker pace in February, marking the first acceleration in inflation since July 2024. Despite some efforts to remain price competitive, non-oil companies raised their output charges for the second successive month. The latest increase was modest, but also the strongest since September last year.
“While robust growth in business activity indicates that the pipeline of orders should eventually be addressed, other factors such as weak job creation and administrative delays pose risks to this outlook. Furthermore, firms continue to report difficulties in securing payments from clients, an issue that appears to be ingrained in the wider market and may necessitate policy action to address,” Owen added.
