Prime Highlights:
Input costs rose at their slowest rate in 13 months, enabling firms to increase their purchases of inputs.
Non-oil businesses experienced a sharp rise in sales, largely driven by strong domestic demand.
Key Background:
The UAE’s non-oil economy demonstrated continued growth in January, with a marked increase in sales volumes driven by strong domestic demand, according to S&P Global. The Emirates’ Purchasing Managers’ Index (PMI) stood at 55, slightly down from December’s nine-month high of 55.4. A PMI above 50 signals growth, while below 50 indicates contraction.
This sustained expansion reflects the UAE’s broader economic diversification efforts and is part of a regional trend, with Saudi Arabia achieving a decade-high PMI of 60.5, and other countries such as Kuwait, Egypt, and Qatar posting positive figures.
David Owen, Senior Economist at S&P Global, noted that the UAE’s non-oil sector saw strong activity growth in January, driven by new business orders, favorable market conditions, and easing cost pressures. This was accompanied by a reduction in inflationary pressures, with input costs rising at their slowest rate in 13 months. As a result, companies increased their purchases of inputs early in the year, benefiting from the lower input prices.
Despite this, the sector’s workforce saw only modest growth, with hiring rates increasing at the fastest pace since August. However, capacity constraints remain an issue, as work-in-hand surged at the fastest pace in eight months, exacerbating pressure on firms’ ability to meet demand.
However, there were concerns about the future outlook, with only 9% of firms expecting growth in the next 12 months. Intense competition and cash flow challenges, arising from high backlogs and slow client payments, contributed to dampened business confidence, which fell to its lowest level since December 2022. The survey also highlighted concerns about ongoing capacity strains and the impact of slow client payments on operational efficiency. In Dubai, the non-oil sector also showed positive growth, with a PMI of 55.3. However, business confidence in the emirate’s non-oil sector dropped to its lowest level in over four years, reflecting a cautious outlook for future activity.
