Business activity in the UAE's non-oil private sector climbed to a four-month high in July, while employment numbers rose, as companies continue to bounce back from the fallout of the Iran war.
The seasonally adjusted S&P Global UAE Purchasing Managers' Index climbed to 52.7 from 50.8 in June. A reading above 50 indicates growth in economic activity, while one below indicates a contraction.
The latest print was the highest recorded since March and pointed to a moderate improvement in the non-oil private sector’s health.
The broader economy has faced a slowdown due to the impact of the war, resulting in cautious client activity and competitive pressures, but the underlying fundamentals remain solid.
“July data signalled some relief for UAE companies after the PMI dropped perilously close to the 50.0 neutral threshold in June, as a restoration of business confidence and a period of smoother trade flows allowed for a pick up in growth,” said David Owen, principal economist at S&P Global Market Intelligence.
“Although the July PMI reading of 52.7 remains a step lower than the levels observed before the Middle East conflict, it provided some assurance that businesses were coping better after a heavily disrupted second quarter.”
The labour market in the UAE, the Arab world’s second-largest economy, which experienced one of the sharpest contractions in June since the height of the Covid-19 pandemic, also bounced back at the beginning of the third quarter.
Workforce levels returned to growth in July, with firms citing “stronger demand” as a justification for “renewed hiring”.
However, business confidence towards future output faded for the third consecutive month to its lowest since March, with only 7 per cent of firms predicting an uplift over the coming year.
“The volatile situation in the Strait of Hormuz continues to make the future uncertain and kept price pressures elevated in July,” Mr Owen said.
War uncertainty
The Iran war has tipped the region into one of its worst geopolitical crises in decades. The conflict, which began on February 28, led to Iranian strikes on its Arab neighbours and the closure of the Strait of Hormuz.
Hospitality, aviation and tourism were among the sectors hit hardest as waves of Iranian drones and missiles struck energy sites and civilian infrastructure across the region.
The US and Iran are currently negotiating to finalise a deal to open the strait. The reopening of the strait would relieve economic pressure on Gulf economies. However, despite the war, which is now in its sixth month, regional economies have maintained growth but at a slower rate, according to the International Monetary Fund.
The UAE's economy grew by 3 per cent on an annual basis in the first three months of this year to Dh485 billion ($132 billion), driven by expansion in the country's non-oil sector, the government media office said on Tuesday, quoting data from the Federal Competitiveness and Statistics Centre.
The Emirates' non-oil gross domestic product grew 4.8 per cent, accounting for 79.4 per cent of contribution to the national economy, the data showed.
The quarter included a month of the Iran war, at a time when the UAE was facing daily missile and drone attacks.
New order growth
The expectations of an end to fighting in the near future boosted new order growth to the fastest pace since February, as businesses surveyed in the PMI pointed to a recovery in customer confidence.
Domestic infrastructure projects provided additional stimulus though many firms continued to report tight client budgets and intense market competition, according to the survey.
For the first time since March, non-oil companies received greater inflows of export work as well, which they associated with a “pick up in activity across the region”, it said.
Though the rise in export sales was modest, it was the fastest seen in a year.
Outstanding business accumulated at the strongest rate in four months in July, reflecting both rising customer demand and supply constraints from freight congestion, data showed.
Dubai PMI
Dubai saw July business activity growth easing, despite a stronger uplift in new orders.
The Dubai PMI rose to 51.7 in July from 50.7 reported in June, mainly driven by a rebound in new business growth, which jumped to highest level since March on improving customer demand.
Business activity rose at the weakest rate since June 2021, as panelists cited headwinds from competition and price pressures, the PMI data showed.
Confidence in future output slipped to a four-month low, with businesses reporting a “solid increase in input costs in July”, the survey said.
Hiring activity in the emirate recovered slightly, following a drop in June.
