Business activity in the UAE's non-oil private sector grew in June, but demand slowed due to the Israel-Iran war.
The S&P Global Purchasing Managers Index for the Emirates inched up to 53.5 in June, from 53.3 in May, demonstrating “solid improvement” in the sector's overall health.
While this is well above the 50-mark that separates expansion from contraction, the level of new orders growth was the weakest since September 2021, S&P said on Thursday.
“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,” said David Owen, senior economist at S&P Global Market Intelligence.
“However, 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.”
The 12-day war, which began on June 13 when Israel attacked Iran's nuclear and energy targets, rattled oil markets and led to rising concerns about energy security. Shipping companies continued to operate through the Strait of Hormuz, although Iran threatened several time to close waterway vital for global crude trade.
Gulf countries were also on high alert for radiation levels and potential retaliation from Iran after US bombed its nuclear enrichment facilities but found no unusual activity, according to the crisis department of the Gulf Co-operation Council.
However, despite a slowdown in demand last month, the UAE economy remains robust. Fitch Ratings, S&P Global and Moody’s Investors Service in June assigned strong sovereign credit rating to the UAE as it continues to strengthen economic diversification and boost non-oil sector growth.
Last month, the World Bank also upgraded its growth forecast for the UAE to 4.6 per cent this year, up from its 4 per cent projection in January, on expanding non-oil activity and phase-out of the Opec+ oil production cuts.
Supply chain bottlenecks
Non-oil private sector businesses the UAE last month also managed to increase output to cut backlogs, S&P Global said.
“Increased efforts to complete backlogs meant that output growth quickened,” Mr Owen said.
Companies in June also reduced selling prices for the first time in six months, although the rate of discounting was marginal.
“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,” Mr Owen added.
Non-oil business in the Emirates also boosted staffing, with employment increasing modestly in June. Although the pace of growth slipped to a three-month low, it remained stronger than that recorded in the first quarter.
In Dubai, the emirate's PMI dropped to its lowest level in nearly four years in June, driven by a marked slowdown in sales growth, according to S&P.
Non-oil private sector companies' new order volumes increased slightly in June, the weakest rate of expansion in 45 consecutive months of growth, amid competitive pressures and softening tourism sector due to heightened regional tensions.
However, overall business activity rose last month and workforce numbers increased slightly for the third consecutive month.
Saudi Arabia on a hiring spree
Meanwhile in Saudi Arabia, business conditions at non-oil private sector improved sharply as demand grew, output expanded and hiring accelerated, S&P said in a separate report.
The seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index rose to a three-month high of 57.2 in June from 55.8 in May.
“Firms largely linked the pickup in activity to improving sales, new project starts, and better demand conditions,” said Naif Al-Ghaith, chief economist at Riyad Bank.
New orders rose at the fastest pace in four months, driven mainly by domestic sales.
Companies hired staff at the fastest rate since May 2011 as they recruited skilled teams to meet higher workloads.
However, companies' staff costs rose at a record pace as firms worked to retain talent.
Due to high demand for skilled staff, salary offers have increased and overall staff costs rose at the fastest pace since the survey began in 2009, the report said.
Looking ahead, non-oil companies remain confident of an uplift in activity over the next 12 months, with business confidence ticking up to a two-year high.
Optimism is largely driven by resilient domestic economic conditions, robust demand and improving sales pipelines, the report said.
Last month, the International Monetary Fund revised Saudi Arabia’s economic growth upwards amid the unwinding of production cuts by Opec+ members.
The Arab world’s largest economy is forecast to grow 3.5 per cent this year, up from a previous projection of 3 per cent in April, and 3.9 per cent in 2026, an upwards revision of 0.2 percentage points from the last prediction.
