UAE non-oil business activity down in May amid tariff pressures

Fundamentals remain 'solid' as economic output rises, S&P says

Bur Dubai's old souq area. The emirate's businesses have benefitted from client confidence and competitive pricing, S&P Global said. Pawan Singh / The National

Business activity in the UAE's non-oil private sector slowed in May amid uncertainty stemming from the global tariff situation, although economic fundamentals remain "solid", S&P Global Market Intelligence said.

The S&P Global Purchasing Managers Index for the Emirates declined to 53.3 last month from 54 in April, the agency said on Wednesday. Although well above the neutral 50 mark that separates expansion from contraction, the index was at its lowest since September 2021.

Despite the dip, improvement in the UAE's non-oil economy remains strong as demand conditions remained robust, resulting in a marked increase in output, the report said.

"Although businesses continued to welcome strong demand from their clients, there were some reports that competitive pressures and weaker trade amid US tariffs had weighed on growth," said David Owen, a senior economist at S&P Global Market Intelligence.

"From an overall perspective, the survey signals that the UAE economy is performing well, but the softer increases in output and new orders hint at momentum easing," he said.

The report also highlighted a record decrease in input stocks, as companies looked streamline their operations. Businesses benefitted from a softer rise in input prices, as inflation decelerated to its lowest since December 2023.

"The sharp cutback in stocks and the broadly subdued outlook for activity suggest that firms are gearing up for softer growth," Mr Owen added.

The UAE has been focusing heavily on diversifying its economy from oil by developing sectors such as technology, manufacturing, tourism, trade and innovation.

The UAE’s economy grew by 3.9 per cent in 2024, the Central Bank reported in April, with the non-oil growth up 4.6 per cent.

The banking regulator expects the country’s GDP to expand at 4.7 per cent this year, with non-oil growth at 5.1 per cent. The economy is expected to grow by 5.7 per cent in 2026.

Globally, the sweeping US tariffs continue to cast a cloud of uncertainty over trade and supply chains, especially with US President Donald Trump remaining unpredictable over his policies.

A number of companies in the UAE have said these tariffs have either no or minimal impact on their businesses, as they benefit from established local supply chains, and they are monitoring the situation so they can adjust accordingly.

"Higher sales often translated into greater activity, although some reported that global economic uncertainty linked to US tariffs had negatively affected output," analysts at S&P Global said in the report.

Meanwhile, Dubai's PMI remained at 52.9 in May, its joint lowest since the beginning of 2022, but S&P highlighted a "solid expansion" in operating conditions across the non-oil private sector.

Businesses continued to receive higher levels of new orders, with the rate of growth ticking up to a four-month high. Panellists linked the upturn to improved client confidence and positive effects from marketing strategies and competitive pricing, it added.