UAE's non-oil business activity picked up slightly in May as output expanded during the month due to higher local demand, despite Iran war uncertainty.
The seasonally adjusted S&P Global UAE Purchasing Managers' Index rose to 52.6 in May, from 52.1 in April. A reading above 50 indicates economic expansion.
The survey results showed that output growth reached a three-month high in May, with about 21 per cent of firms reporting increased activity linked to stronger market demand, project expansion and government-backed initiatives.
However, the index is below its long-running average of 54.3 as supply disruptions due to the closure of the Strait of Hormuz constrained output growth.
The positive output momentum was tempered by rising operational costs amid disruption to supplies as Middle East tensions continue.
Order books were affected as a result of a decline in export sales, although the pace of reduction moderated considerably from April.
New business growth also remained subdued in May amid regional tensions. Employment growth fell to the slowest pace since last October on weaker demand growth, rising input costs and increased automation that constrained hiring.
The Middle East conflict has tipped the region into its one of it worst geopolitical crises in decades. The war, which began on February 28, with Israel and the US bombing Iran, and Tehran lashing out at its Arab neighbours in retaliation, has disrupted business across the region.
Energy sites and civilian infrastructure have been hit by waves of Iranian drone and missile attacks, with hospitality, aviation and tourism among the sectors worst hit.
However, despite the disruption, Gulf economies are expected to grow, albeit at a slower rate, this year, the International Monetary Fund said.
Last month, ratings agency Fitch retained its long-term issuer default rating of AA- for the UAE, stating that oil export revenue, due to higher crude prices, is expected to remain strong during the conflict and offset any immediate negative impact.
The Emirates also has abundant fiscal and external buffers, and is being anchored by Abu Dhabi's sovereign net foreign assets, which are estimated at about 164 per cent of UAE gross domestic product in 2025 – among the highest of Fitch-rated sovereigns, the firm said.
In May, supply chain disruptions hit purchasing activity for UAE non-oil companies, with delivery times lengthening for the second time in three months - and to the greatest extent since April 2020, the PMI found.
Cost pressures also remained high last month, with input prices rising at the second-fastest pace in almost two years. However, firms lowered selling charges for the first time since June 2025 amid intense competition to sell products.
"The continued cut-off to maritime trade had a cascading effect through the UAE economy in May,” David Owen, principal economist at S&P Global Market Intelligence, said.
“Input deliveries were delayed to the greatest extent since the height of the Covid-19 pandemic in April 2020, with some firms reporting that disruptions to manufacturing production schedules fed through to other sectors.”
The longer-term outlook, however, remained strong in May, “suggesting that businesses still view these current challenges as temporary and expect growth to bounce back quickly", he added.
In Dubai, the PMI improved slightly to 52 in May, from 51.6 in April, signalling a "modest improvement" in the non-oil private sector, S&P found.
However, the pace of activity growth was the slowest since June 2021. Survey respondents attributed the slowdown to rising operating costs and subdued client demand conditions.
Saudi Arabia PMI
Meanwhile, Saudi Arabia's non-oil private sector strengthened in May as output increased sharply in the Arab world's largest economy as a result of an improvement in domestic demand and supply chains.
The Riyad Bank Saudi Arabia Purchasing Managers’ Index rose to 52.8 in May, from 51.5 in April.
"Firms reported better business conditions during May, with output growth reaching its strongest level in three months," Naif Al-Ghaith, chief economist at Riyad Bank, said.
"Employment also returned to growth, while purchasing activity improved for the first time since February, reflecting rising confidence among businesses regarding future demand conditions."
