UAE Non-Oil Sector Sees Strongest Growth Since December 2024, But Hiring Slows

The United Arab Emirates' non-oil private sector recorded its most significant improvement in operating conditions since December 2024 during August. This growth was spurred by a substantial increase in customer demand, stronger export performance, and fewer supply chain disruptions. However, businesses remained cautious about expanding their workforce.

According to the S&P Global UAE Purchasing Managers' Index (PMI), the index rose to 55.3 in August from 52.7 in July. This marks the second consecutive month of accelerating growth for the non-oil private sector. New business orders saw their joint-fastest increase in over two years, while output growth reached a six-month high, indicating a robust third quarter for the non-oil economy.

Demand and Supply Chain Resilience

The improved customer activity was noted alongside a gradual easing of economic caution related to regional geopolitical events. Export orders also grew for the second month in a row, reversing declines seen throughout the second quarter. Companies also significantly increased their purchasing activity and built inventories at the fastest rate in nearly three years, a notable shift from recent muted stock accumulation.

Many businesses are actively turning to local suppliers to build supply chain resilience, which has helped reduce sourcing problems and improve delivery times. This localisation strategy, according to S&P Global economist David Owen, has contributed to shorter delivery times and stronger purchasing, while inventory build-up prepares firms for future demand and mitigates supply disruption risks. Input cost inflation eased to its lowest level since February, despite reported higher prices for energy, fuel, cement, steel, and chemicals.

Employment and Business Confidence

Despite stronger sales, the surge in demand did not translate into increased hiring, with employment declining for the second time in three months. Companies remained hesitant to take on additional staff due to ongoing uncertainty about regional conflicts and their broader economic impact, leading to a rapid increase in unfinished work. This suggests a cautious approach to long-term capacity expansion.

Business confidence, however, strengthened to its highest level since April, buoyed by improving sales, expectations around new construction projects, and hopes for a de-escalation of regional tensions.

Dubai's Performance

Dubai's non-oil private sector also showed strong growth, with its PMI rising to 54.1 in August from 51.7 in July. Output and new order growth both reached six-month highs, supported by increased client spending and improved export trade. Input stock accumulation in Dubai was at its fastest pace since December 2017. Similar to the wider UAE trend, employment in Dubai saw a slight decrease, adding to capacity pressures from heightened demand. However, unlike the overall UAE, Dubai businesses reported the fastest increase in total input costs in four months.