Business activity in the UAE's non-oil private sector in August improved at the fastest pace since December 2024 in a clear sign of recovery as companies shake off the impact of the Iran war.
The seasonally adjusted S&P Global UAE Purchasing Managers' Index climbed to 55.3 from the 52.7 recorded in July. A reading above 50 indicates growth in economic activity, while one below indicates a contraction.
The latest PMI index was supported by a substantial rise in new business, the joint-strongest level for more than two years, as well as sharper output growth, inventory expansion, easing supply constraints and lower price pressures.
“The UAE's non-oil economy has shifted decisively into a higher gear, with August's PMI … suggesting that firms are adapting more effectively to the current market environment,” David Owen, principal economist at S&P Global Market Intelligence, said.
“Demand growth accelerated, while delivery times improved and cost pressures softened, indicating a broad-based strengthening in domestic economic conditions.”
The “robust upturn” in August reflected a combination of growing sales momentum and renewed stock build-outs, the S&P Global survey showed.
Companies also reported improvement in customer activity that “came amid a steady, if not complete, easing of economic caution arising from the Middle East conflict”, S&P Global said.
Export demand also increased, marking back-to-back expansions following a spell of decline throughout the second quarter.
August saw the return of many families who had been abroad for the summer, and a drop-off in attacks by Iran on the Gulf states. Dubai and Abu Dhabi were busier as the month went on, and there are hopes that spending in the local economy will offset the sharp decline in foreign tourists.
Ebbing 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 waves of Iranian drone and missile strikes on its Arab neighbours and the closure of the Strait of Hormuz.
Hospitality, aviation and tourism were among the worst hit sectors as Tehran attacked industrial, energy and civilian infrastructure across the region.
Despite several rounds of mediated negotiations, the US and Iran have failed to reach a peace deal or a mechanism to open the Strait of Hormuz.
The reopening of the strait would relieve economic pressure on Gulf economies, which despite the war have maintained growth momentum, albeit but at a slower rate, according to the International Monetary Fund.
The conflict has resulted in cautious client activity and competitive pressures, the S&P report said. However, the economic fundamentals of the Emirates' economy have remained robust. The sharp recovery in business activity in August was the second month of strong results.
While the flow of goods through the strait has improved in recent months, supply chain issues in sourcing inputs from foreign vendors remain.
However, non-oil companies in August were able to accumulate input stocks, supported by a sharp increase in local purchasing activity.
“UAE businesses are actively building supply chain resilience through localisation, with surveyed firms increasingly switching to domestic suppliers to help circumvent geopolitical disruptions,” Mr Owen said.
“This strategy contributed to a further reduction in delivery times and strong purchasing growth.”
UAE firms also accumulated inventories at the sharpest pace in nearly three years, “pointing to growing confidence in the demand outlook and efforts to limit the impact of potential future supply shocks”, he added.
Dubai PMI
Dubai also recorded a strong improvement in business conditions in August.
The Dubai PMI rose sharply to 54.1 last month from 51.7 in July, largely driven by a rebound in client spending and improving exports despite the war disruption.
The August data also signalled the quickest rise in input stocks since December 2017. However, employment in the emirate softened slightly, which added to capacity pressures.
As opposed to the broader UAE trend, non-oil companies in Dubai reported a rise in price pressures in August, with total input costs increasing at the fastest rate in four months, the survey showed.
Saudi non-oil economy
Saudi Arabia's non-oil private sector in August also reported growth in business activity, the strongest expansion in six months.
There was a marked improvement in output as firms benefited from strengthening demand and a continued recovery in market activity. The seasonally adjusted Riyad Bank Saudi Arabia PMI rose to 53.8 in August from 53.1 in July.
However, the external environment remained challenging, with export orders falling again amid regional tensions, and persistent cost pressures tested companies' abilities to protect their margins, according to the S&P Global survey.
