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The year has started on a strong note for the UAE’s non-oil sector with robust growth and a sharp rise in business activity. However, capacity pressures posed a major challenge for the sector, according to a business survey.
The seasonally adjusted S&P Global UAE PMI posted 55.0 for January, only slightly lower than the nine-month high of 55.4 in December, largely due to capacity pressures that have remained a major issue for the sector.
Favourable market conditions and softening cost pressures resulted in a surge in new orders, but this had no impact on inventories with stocks rising only fractionally despite strong purchasing growth.
According to the survey, firms were “struggling to contain backlog volumes amid soaring demand and administrative delays”, the latter of which was triggered by slow client payments.
Concerns around competitive pressures also curbed optimism, with sentiment slipping to its lowest level in over two years.
Strong market conditions and increased clientele led to businesses reporting a persistent sharp rise in sales volumes, with the demand mainly domestic-driven as growth in new export orders nearly stalled, data revealed.
Non-oil businesses were also able to take advantage of favourable price pressures with the average cost burden rising at its slowest rate in 13 months, despite evidence of higher costs for transport and machinery, and a quicker rise in salaries.
The slowdown in inflation helped firms to increase their purchases of inputs at the start of the year, with non-oil companies opting to raise their selling prices in January, marking the first increase in four months
David Owen, Senior Economist at S&P Global Market Intelligence, said robust expansions in activity and new business, as well as lower input cost inflation, suggest the UAE economy is in a healthy position.
“The broad decline in business confidence over the past few months will therefore be a surprise to some. Notably, total confidence was at its lowest level since December 2022. Strong competition and cash flow concerns arising from heavy backlogs have appeared to sow doubt among firms that they can continue to boost their revenues, underlining efforts to reduce the gap between output and input prices,” he said.
Employment numbers increased marginally, although the pace of growth was the fastest since August 2024, survey data revealed.
“A persistently low rate of employment growth suggests that firms are lacking the ability to hire in order to tackle backlog issues,” Owen said.
Dubai PMI
Business conditions in Dubai’s non-oil private sector improved sharply in January, coming in marginally higher to UAE’s reading.
The headline PMI registered 55.3, falling only slightly from December's nine-month high of 55.5.
Total activity expanded in response to new business inflows, as survey panellists highlighted favourable market conditions. Cost pressures also eased, with the pace of input price inflation slipping to a three-month low.
However, non-oil firms reported only fractional rises in employment and inventories in January, amid a subdued outlook for future business activity. Output expectations also dropped to their lowest level in over four years.
(Writing by Bindu Rai, editing by Seban Scaria)