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Growth in the UAE’s non-oil private sector experienced its weakest June in over five years, with tailwinds from the Iran conflict continuing to weigh on client activity and competitive pressure.
The seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) fell from 52.6 in May to 50.8 in June, slightly above the 50 baseline that separates economic growth from contraction.
The month’s challenges were highlighted in the employment data, which contracted at the sharpest rate since August 2020. Operating conditions were also the weakest recorded since February 2021, PMI data revealed.
The impact of the Middle East conflict continued to weigh on firms despite resilient domestic spending and public investment growth that continued to support firms. A “robust” sales pipeline, construction projects, and digital services expansion “provided pockets of strength” but were unable to offset the “broader weakness”, the report said.
New business growth, which, despite accelerating to a three-month high, also remained well below the historical average, as customers delayed spending decisions, survey data revealed.
Tourism sector weakness and elevated price pressures were highlighted as dampeners on demand. Consequently, the labour market also experienced its first contraction in over four years.
Capacity pressures remained muted in June, with backlogs accumulating at the second-slowest pace in 2.5 years. Where a rise was observed, firms cited production planning delays caused by shipment disruptions and raw material price volatility.
However, supply chain performance witnessed an improvement at the fastest rate in four months as an easing of shipping bottlenecks in the Strait of Hormuz allowed for recovery.
Meanwhile, the survey data again signalled a profitability squeeze at the end of Q2 as input costs recorded a sharp increase linked to transport fees and commodity inflation.
On the output side, firms raised their selling prices modestly in June, but the increase was softer than that for input costs.
Despite cost inflation and a softening in output growth, the report said the market remains optimistic with government investment anchoring business confidence, although those dependent on external conditions expressed caution.
“Looking ahead, recent moves towards an easing of geopolitical tensions in the region should help firms recover demand and normalise supply chains – indeed, the greater movement of shipping along the Strait of Hormuz in June led to shorter delivery times,” David Owen, Principal Economist at S&P Global Market Intelligence said.
Dubai PMI
A slowdown in demand growth led the Dubai PMI to fall to 50.7 in June, from 52.0 in May, representing the weakest improvement in the non-oil private sector since January 2021.
Sales growth was reportedly curbed by continued spending delays and reductions in travel due to the regional conflict.
Despite pressures, businesses raised output, with the rate of expansion picking up to the fastest since March. Although, capacity strains and rising operating costs contributed to a decrease in staff numbers in June, the pace of job losses was the quickest recorded in 5.5 years.
(Writing by Bindu Rai, editing by Brinda Darasha)
