Domestic spending and public investment supported firms, although hiring declined.
Dubai: Domestic spending and government investment helped support business confidence in the UAE in June, even as the non-oil private sector posted its weakest expansion in more than five years.
The seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) fell to 50.8 in June from 52.6 in May, marking the weakest improvement in operating conditions since February 2021.
A reading above 50 signals expansion, but the latest data indicates that growth in the non-oil private sector was only marginal.
The slowdown was driven by weaker client demand, delayed spending decisions, regional geopolitical disruptions, rising cost pressures, and increased competition. Overall private sector activity expanded at its slowest rate in five years, with firms noting that Middle East tensions weighed on demand and disrupted business planning.
Hiring takes the biggest hit
The labour market showed the clearest signs of strain, with employment declining for the first time in more than four years and at the fastest pace since August 2020.
Companies attributed the decline in staffing to weaker demand, rising costs, and internal productivity measures, as firms sought to control expenses amid tighter margins. The reduction in headcount also helped stabilise wage costs for the first time in nearly three-and-a-half years.
“The robust nature of the decline in employment underscores the impact on firms from the combined pressures of weak client demand and rising costs,” said David Owen, Principal Economist at S&P Global Market Intelligence. “While there were modest signs of improvement in June, new business growth remained relatively subdued, as clients continued to delay spending and tourism activity stayed muted. Input price inflation eased to a four-month low but remained elevated overall, prompting many businesses to focus on cost control rather than expanding capacity.”
New business growth rose to a three-month high but remained well below the long-term average. Companies reported pockets of strength from construction activity, digital services expansion, and steady sales pipelines, though these were not enough to offset broader market softness.
Supply chains recover
Supply chain conditions showed improvement, with delivery times accelerating at the fastest pace in four months. Firms attributed the gains to easing shipping bottlenecks in the Strait of Hormuz, helping restore smoother supply flows after earlier disruptions.
Purchasing activity also rebounded in June after contracting in May, as companies restocked based on sales demand and built buffer inventories to guard against potential shortages.
Backlogs increased only slightly, with capacity pressures remaining limited. Where delays did occur, businesses pointed to shipping disruptions, production planning challenges, and volatility in raw material prices.
Margins remain squeezed
Cost inflation continued to pressure profitability, with input prices rising at a historically elevated rate. Companies reported higher costs in procurement, transportation, and commodities.
Selling prices increased only modestly and by significantly less than input costs, as businesses absorbed part of the rise to maintain demand in a highly competitive market.
Owen said, “Looking ahead, recent moves towards easing geopolitical tensions in the region should support a recovery in demand and help normalise supply chains. Greater shipping movement through the Strait of Hormuz in June led to shorter delivery times. However, client caution has persisted, and firms have already reduced staffing levels, suggesting that any rebound in the non-oil sector may be gradual.”
Dubai also slows
Dubai’s non-oil private sector also recorded weaker growth in June, with the Dubai PMI falling to 50.7 from 52.0 in May—its weakest improvement in operating conditions since January 2021.
New business increased only marginally, with firms citing delayed spending decisions and weaker travel activity linked to regional tensions. Output growth picked up to its fastest pace since March, but limited capacity pressures and cost-control measures contributed to a decline in employment.
Job losses in Dubai were modest, but the rate of decline was the fastest seen in five-and-a-half years. Input cost pressures remained elevated despite some easing, while companies raised selling prices after offering discounts in May.
Despite the weaker June reading, business sentiment remained broadly positive. Firms with secured contracts and exposure to public sector spending showed stronger confidence, while those reliant on external demand remained more cautious.
