UAE Non-Oil Growth Slows to a Five Year Low in June but Stays in Expansion
Growth in the United Arab Emirates non-oil private sector slowed to its weakest in more than five years in June, though activity kept expanding, according to the S&P Global Purchasing Managers’ Index. The headline index fell to 50.8 from 52.6 in May, the softest reading since February 2021, but remained above the 50.0 mark that separates expansion from contraction.
The drop of 1.8 points was one of the sharper monthly falls in the series and left the index only 0.8 points above the no-change line, our reading of the figures, signalling that the non-oil economy is still growing but at close to a standstill pace. The most notable shift was in the labour market: employment fell for the first time in more than four years, and at the fastest rate since August 2020, as firms trimmed capacity in response to softer demand and rising costs. New business rose to a three-month high but stayed below its long-run average, so the pipeline improved even as hiring turned down.
On costs and supply, the picture was mixed but easing at the margin. Input-cost inflation remained elevated, tied to transport fees and commodity prices, but slowed to its weakest in four months, and firms raised their own selling prices only modestly, by less than the rise in their costs. Suppliers’ delivery times improved at the fastest pace in four months as shipping through the Strait of Hormuz normalised and regional tensions eased, shortening supply chains after a disrupted period. Backlogs of work rose only marginally, the second-slowest accumulation in about two and a half years, indicating that firms had ample spare capacity.
Dubai told a similar story. Its PMI reportedly fell to 50.7 from 52.0, the weakest improvement since January 2021, even as output growth there picked up to its fastest since March. As at the national level, the soft spot was employment, with job cuts in Dubai running at their quickest in about five and a half years. The combination of firmer output and new orders alongside falling employment is the defining tension of the month: firms are still winning work but are cutting staff capacity rather than expanding it.
Set against its own history, the June reading keeps the UAE non-oil sector in an extended run of expansion, and both output expectations and the underlying pipeline point to continued, if slower, growth. David Owen, Principal Economist at S&P Global Market Intelligence, noted that the drop in employment reflected the double effect of soft client demand and rising cost burdens, but also that the easing of regional tensions and the freer movement of shipping should help firms recover demand and normalise supply chains, even if any rebound proves gradual. Public investment and a solid sales pipeline continued to anchor business confidence.
The June reading also marks a clear turn in the recent trend. The index had risen from 52.1 in April to 52.6 in May before dropping to 50.8 in June, so a two-month improvement was more than reversed in a single month, our reading of the series. Measured against a long-run average nearer 54, June’s 50.8 sits well below trend, underlining how much momentum has come out of the non-oil sector even as it continues to expand. The divergence between a firmer demand pipeline and falling employment is the signal to watch: when firms add new orders but cut staff at the same time, they are prioritising cost control and the use of spare capacity over expansion, a stance that tends to persist until businesses are confident the recovery in demand is durable rather than temporary.
The reading also sits within the broader Gulf picture. Business surveys across the region pointed to softer non-oil momentum in June while activity stayed in expansion, and the common thread was the normalisation of shipping and logistics after a disrupted stretch, which shortened delivery times and began to ease the input-cost pressure that had built up earlier in the year. For the UAE specifically, where the non-oil economy carries the large majority of output and is the focus of the diversification agenda, the survey is an early signal that the strong start to the year has moderated, even as the fundamentals of public investment, tourism and trade infrastructure remain in place to support the next phase of growth.
Why it matters: The PMI is one of the most timely gauges of non-oil momentum, the part of the economy at the centre of the UAE’s diversification strategy, so a five-year low, even one still in expansion territory, signals that the non-oil engine is cooling from a strong run rather than stalling. The standout is the labour market, where the first staff reduction in more than four years suggests firms expect demand to stay soft in the near term. For the UAE and the wider Gulf, the reading also captures a turning point in regional logistics, as the normalisation of shipping through the Strait of Hormuz shortens delivery times and eases the supply-chain strains of recent months, a positive for importers and manufacturers across the region.
Outlook: The key question is whether new orders, which improved in June, translate into a broader recovery in output and hiring, or whether continued caution keeps activity near the no-change line. Further normalisation of shipping and supply chains, alongside sustained public investment, would support a gradual rebound, while persistent client caution and elevated costs are the main risks to watch in the July survey.
Sources: S&P Global Market Intelligence; Reuters.
