The UAE’s non-oil private sector businesses experienced a slowdown in demand momentum at the end of the second quarter, as rising tensions across the region made clients hesitant to spend. Supply chains were further impacted by increased geopolitical uncertainty, although input cost pressures did ease.
Despite mounting regional tensions, the seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) rose from 53.3 in May to 53.5 in June, indicating a solid improvement in the sector’s health over the latest survey period. The slight uptick masked diverging trends among the index’s subcomponents, as a softening of new business growth was offset by a quicker expansion in output and a stabilization of inventories.
“The UAE non-oil sector showed signs of a minor setback in June due to the conflict between Israel and Iran. The impact was primarily felt on the demand side, as some businesses reported a slowdown in orders driven by heightened tensions. This resulted in a further easing of overall new business growth, which dropped to its lowest level in nearly four years,” said David Owen, senior economist at S&P Global Market Intelligence.
Firms boost output despite demand concerns
While the UAE’s non-oil businesses reported a solid rise in their new order intakes, the rate of growth eased considerably and was the weakest since September 2021. According to reports from survey panellists, client demand was somewhat dampened by concerns about increasing regional tensions due to the conflict between Israel and Iran. Promotion-driven sales and increased clientele were nonetheless reported widely.
Despite sales growth softening, UAE firms in the non-oil sector increased their output to a greater extent than in the previous month. In fact, the gap in expansion rates between activity and sales widened sharply, which firms partly attributed to efforts to address long-standing capacity pressures. The latest data indicated some success in this area – backlogs of work increased at the slowest rate in 17 months, although the rise remained stronger than its long-run average.
“With firms instead able to turn their attention to addressing the substantial level of outstanding work — evidenced since early 2024 — the impact on overall business conditions was negligible. Increased efforts to complete backlogs meant that output growth quickened, while the decline in stock levels was halted after a record slump in May,” added Owen.
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Shipping and customs challenges impact delivery times
Shipping and customs challenges were also noted in the latest survey, resulting in the slowest improvement in suppliers’ delivery times since April 2024. However, businesses in the UAE’s non-oil sector continued to increase their purchasing activity in June, reporting a slightly quicker upturn compared to May’s 28-month low.
This allowed firms to prevent a further decline in their inventories, as stocks of purchased inputs were relatively stable after decreasing at a record pace in the Dubai PMI the previous month.
“The rate of input cost inflation was the lowest seen in nearly two years, which allowed firms to offer discounts to customers. With consumer price pressures appearing limited, the latest data suggests that a rebound in sales growth is wholly possible in the coming months, should regional tensions ease,” added Owen.
The report also revealed that the Dubai PMI dropped to its lowest level in nearly four years in June, driven by a marked slowdown in sales growth. Non-oil private sector companies reported only a slight increase in new order volumes in June, the weakest in 45 consecutive months of growth. Many firms noted that competitive pressures and weaker tourism due to heightened regional tensions had negatively impacted overall levels of new work. Nevertheless, business activity rose sharply in June, with the pace of expansion matching that seen in May.
