UAE non-oil business growth regains momentum

The UAE’s non-oil private sector expanded at its strongest pace in four months during July, supported by a revival in customer demand, improving exports and smoother regional trade flows.

The seasonally adjusted S&P Global UAE Purchasing Managers’ Index rose to 52.7 from 50.8 in June, moving further above the 50-point threshold that separates expansion from contraction. The increase marked a sharp recovery from June, when business conditions improved at their weakest rate in more than five years.

New orders grew at the fastest pace since February as companies reported stronger domestic sales and increased commercial activity across Gulf markets. Export orders also returned to growth for the first time since March, rising at their quickest rate in a year.

Businesses linked the improvement to easing regional tensions, better trade conditions and a gradual restoration of confidence among customers. Transport and supply routes operated more smoothly than during the previous month, although uncertainty surrounding the Strait of Hormuz continued to influence business decisions and longer-term expectations.

July’s figures offered some relief after months of pressure on tourism, transport, trade and other services exposed to regional disruption. The non-oil economy had entered the second half of the year with weaker demand, delayed spending decisions and interruptions to shipping weighing on activity.

Companies increased output at a faster rate to meet the rebound in orders. The rise in production remained solid, although it was not as pronounced as the recovery in sales. Firms also reported a build-up in unfinished work, with backlogs increasing at the strongest pace in four months.

The accumulation of outstanding business reflected a combination of firmer demand and continuing freight congestion. Some companies struggled to complete orders within existing timeframes, while others faced delays in receiving materials and services required for production.

Employment returned to growth following a steep fall in June. Businesses added workers as workloads increased, reversing the first reduction in staffing levels recorded in more than four years during the previous month.

The improvement in hiring was modest, suggesting companies remained cautious about expanding payrolls aggressively. Many firms continued to rely on existing capacity while assessing whether the recovery in demand could be sustained.

Cost pressures remained a concern. Input price inflation strengthened and moved closer to the elevated level recorded in April. Businesses cited higher material, transport and labour expenses, along with costs associated with supply-chain disruption.

Companies raised their selling prices for a second successive month to recover part of the increase in operating costs. The rise in charges was mild, indicating that competitive conditions continued to limit the ability of firms to pass higher expenses fully to customers.

Discounting and competitive pricing have been persistent features of the UAE’s private-sector market, particularly in construction, retail and business services. Firms seeking to preserve market share have often absorbed part of their cost increases, placing pressure on profit margins.

Business confidence weakened for a third consecutive month and fell to its lowest level since March. Companies remained positive about activity over the coming year, but expectations were restrained by geopolitical uncertainty, rising costs and questions over the durability of the improvement in demand.

The contrast between stronger current activity and softer future expectations indicated that companies were treating July’s rebound cautiously. While sales and exports improved, businesses continued to monitor shipping conditions, regional travel patterns and customer spending.

The UAE economy has shown greater resilience than several regional peers because of its diversified commercial base, financial buffers and role as a centre for logistics, aviation, tourism and international investment. Policy measures and the rerouting of trade flows have also helped limit the effect of regional disruption.

The country’s economy grew by 6.2 per cent in 2025 to about Dh1.9 trillion, while non-oil output expanded by 6.8 per cent to Dh1.5 trillion. Trade, financial services, construction and manufacturing accounted for large shares of non-hydrocarbon activity.

The performance strengthened the position of non-oil industries as the main engine of economic expansion. Their contribution has increased as the government pursues a long-term strategy centred on advanced manufacturing, technology, tourism, finance and global commerce.

International assessments issued in July found that the economy had remained resilient despite the Middle East conflict, supported by policy intervention and the redirection of trade and oil flows. They also warned that overall output could soften in 2026 as uncertainty affects tourism, property, transport and commerce.

Dubai’s economy is particularly sensitive to changes in international travel, shipping and consumer confidence. Its non-oil PMI dropped to 50.7 in June from 52 in May, marking the weakest improvement in business conditions since January 2021.