UAE Non‑Oil Sector Expands Despite Demand Pressure
The PMI sub‑index for new orders dropped to 54.5 in June from 56.2 in May, marking its lowest level since September 2021. Analysts attributed this decline to the conflict between Israel and Iran, which suppressed client demand as businesses opted to defer or scale back commitments. David Owen, senior economist at S&P Global Market Intelligence, noted that 'the impact of the conflict…was mostly felt on the demand side, with some slowdown in orders.' Despite this, he emphasised that overall business conditions remained largely stable as companies pivoted to process existing work rather than chasing fresh contracts.
Output growth accelerated as firms prioritised fulfilment of pending orders, with many reporting elevated production levels aimed at reducing inventories. Delivery times continued to improve, although the pace of improvement was the slowest in fourteen months, and input cost inflation decelerated to its lowest rate in nearly two years—suggesting that cost pressures had begun to ease. Staffing levels also increased once more, with firms hiring to handle the elevated workload and underpin continued expansion.
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Confidence levels in the sector climbed to their highest since the previous November, signalling optimism that if geopolitical tensions subside, demand could rebound strongly. Nevertheless, Dubai's non‑oil PMI stood at 51.8—its softest performance in nearly four years—slipping from 52.9 in May. Competitive pressures, weak tourist numbers, and subdued sales growth were cited as drivers of this slowdown. Still, business activity remained in growth territory, supported by increased workforce numbers and a proactive approach to handling operational capacity.
The broader Gulf region reflected mixed fortunes. Gulf bourses, buoyed by eased tensions following a ceasefire, recorded gains, with Dubai stocks reaching a 17‑year high. However, investors remained wary of potential exposure to geopolitical volatility. Oil prices held steady, providing further support to markets, though analysts cautioned that any resurgence in regional unrest could quickly reverse gains.
The June PMI results underscore the resilience of the UAE's economic diversification strategy. Active measures to reduce dependency on oil-driven growth—including investments in tourism, services, manufacturing, and logistics—appear to be paying dividends. Domestic demand has emerged as a stabilising force, offsetting weaker external demand. Public and private sector initiatives, such as new infrastructure projects and retail incentives, also signal support for sustained non‑oil growth.
Key risks remain. The lingering effects of regional tensions continue to temper investor sentiment and delay client spending decisions. Supply chain fragility could resurface if external disruptions intensify, while sectoral imbalances—particularly in tourism‑dependent areas like Dubai—could weigh on localised performance.
Analysts predict that if geopolitical calm endures, new order intake should recover, reinforcing the upward trajectory of activity. The combination of strong backlog clearance, easing cost pressures, and rising confidence creates a conducive environment for growth. A careful watch on demand indicators in the coming months will show whether the current momentum can be sustained once external uncertainties further dissipate.
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