UAE non-oil growth slows sharply

The UAE’s non-oil private sector came close to stalling in June as the impact of the Iran conflict, softer tourism activity and cost pressures hit client demand, leaving firms with the weakest improvement in business conditions since February 2021.

The seasonally adjusted S&P Global UAE Purchasing Managers’ Index fell to 50.8 in June from 52.6 in May, staying only slightly above the 50 mark that separates expansion from contraction. The reading marked the weakest June performance in more than five years and signalled a sharp loss of momentum after months of pressure from disrupted shipping, higher transport costs and cautious spending decisions.

The slowdown was broad enough to show up in employment. Staffing levels fell for the first time in more than four years, with the rate of job cuts the sharpest since August 2020. Firms linked the reduction in headcount to softer sales, tighter margins, automation and efforts to improve productivity at a time when cost burdens remained high.

Business activity still expanded, but at its slowest pace in five years. Construction projects, digital services and existing sales pipelines offered support, yet they were not enough to offset the drag from delayed client decisions and a weaker tourism-linked order flow. Competitive pressure also limited firms’ ability to pass higher costs fully to customers, forcing many companies to choose between protecting margins and defending market share.

New business growth improved to a three-month high, but remained subdued by historical standards. Companies reported that customers continued to postpone spending commitments, especially where travel, discretionary services and external trade exposure were involved. Export demand remained vulnerable to uncertainty across regional shipping lanes, though supply-chain strains appeared less severe than in May.

The June figures follow a modest improvement in May, when the headline index rose to 52.6 from 52.1 in April. That gain was supported by stronger demand, project expansion and government-backed activity, but it masked deeper problems in logistics and pricing. Delivery delays in May were the worst since April 2020 as restrictions and risk around maritime routes disrupted input flows and raised transport costs.

June brought some relief on deliveries as shipping movements normalised, but the demand response was slow. Companies rebuilt inventories after a decline in purchasing activity the previous month, suggesting that some firms were preparing for continued uncertainty rather than committing to aggressive expansion. Input cost inflation eased to a four-month low, yet remained elevated because of transport fees, commodity prices and wage pressures in selected segments.

David Owen, principal economist at S&P Global Market Intelligence, said the decline in employment showed the effect of “soft client demand and rising cost burdens” on firms. He said easing regional tensions should help demand and supply chains recover, but warned that client caution and staff reductions pointed to a gradual rebound rather than a swift recovery.

Dubai’s non-oil private sector also weakened. Its PMI fell to 50.7 in June from 52.0 in May, marking the softest improvement since January 2021. New orders rose only modestly as regional conflict weighed on travel and sales, while firms cut jobs at the fastest pace in about five-and-a-half years. Output, however, grew at the quickest rate since March, helped by work already in hand and efforts to clear backlogs.

The UAE’s economic model remains heavily supported by non-oil activity, even as the latest survey shows a more fragile operating environment. Non-oil GDP grew 6.8% in 2025, outpacing overall real GDP growth of 6.2%, while trade, finance, construction, manufacturing, real estate and transport continued to anchor diversification. The non-oil economy accounts for more than three quarters of total output, making any sustained softening in private-sector activity important for the broader outlook.