Business activity levels across the UAE’s non-oil sector recorded another rise in July as firms witnessed increases in inflows of new work, ongoing projects and better supply chain conditions. However, the rate of business activity expansion eased for the third month in a row and was the softest in almost three years. Competitive conditions, rising price pressures, and capacity overloads weighed on the performance of the UAE’s non-oil sector in July.
While rising customer demand continued to support the growth of activity, firms’ desire to retain clients coupled with ongoing capacity challenges led to another sharp increase in outstanding work. This also resulted in a decrease in inventories for the first time since late 2020.
Price inflation rises
Price inflation accelerated further, with companies experiencing the fastest rise in input costs in two years. Higher input prices were once again partially passed through to customers as output charges increased for the third month in a row. Firms cited higher material prices, increases in wages, and other overhead costs as reasons behind the rise in price pressures.
Therefore, the seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) dropped to 53.7 in July from 54.6 in June, its lowest since September 2021. The index was also below its long-run average of 54.4 but remained solidly above the 50.0 neutral threshold.
Meanwhile, the Dubai PMI dropped to its lowest level in 2.5 years in July. At 52.9, down from 54.3 in June, the headline index signaled a solid but slower improvement in the health of the non-oil private sector.
Demand conditions remain favorable
Demand conditions across the UAE’s non-oil sector remained favorable in July with sales witnessing a sharp rise. International demand also saw improvement with exports rising at the second-strongest pace in nine months. However, high competition led to a drop in new order volumes for some firms.
“Overall, the PMI suggests that the non-oil sector is expanding solidly and could be strengthened if companies start to get on top of their workloads. Firms are generally optimistic about this, with confidence in the year ahead remaining strong, while hiring also continued in a bid to raise staff capacity,” stated David Owen, senior economist at S&P Global Market Intelligence.
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Inventories fall
A greater workload in addition to processing challenges and existing projects overrunning led to another substantial rise in outstanding workloads. This pushed firms to use their inputs as much as possible to avoid further backlogs. Consequently, overall inventory volumes across the UAE’s non-oil sector fell for the first time since November 2020.
Looking ahead, companies across the UAE non-oil sector predicted that improving economic conditions will continue over the next 12 months. However, the degree of confidence slipped to the weakest since January. Job creation also softened to a six-month low in July.
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