UAE non-oil business growth slows in May, PMI shows

The UAE's non-oil private sector growth slowed to a near four-year low in May, with the S&P Global UAE Purchasing Managers' Index (PMI) falling to 53.3 from 54.0 in April, marking the weakest expansion since September 2021. Output growth hit a 44-month low, reflecting softening momentum despite strong demand, while new order growth also eased; competitive pressures and US tariffs were cited as contributing factors. Business expectations for future output have been subdued, with optimism falling to its lowest level since January.

Analysis

The UAE's non-oil private sector exhibited a notable deceleration in May, with the S&P Global Purchasing Managers’ Index (PMI) declining to 53.3 from 54.0 in April, its lowest reading since September 2021. While this figure remains above the 50.0 expansionary threshold, the underlying components signal softening momentum. Specifically, output growth slowed to a 44-month low, with its sub-index falling to 57.3 from 59.4, and new order growth, though still robust, eased to a seven-month low with its sub-index at 56.2. Contributing factors cited include increased competitive pressures and the adverse impact of US tariffs on trade. Further evidence of this slowdown includes a record decline in inventories as firms streamlined holdings, and an easing in the accumulation of backlogs to a 16-month low. Business sentiment regarding future output has also dampened, with optimism reaching its lowest point since January. In contrast, Dubai's non-oil private sector demonstrated relative stability, maintaining a PMI of 52.9, identical to April, and even saw new order growth accelerate to a four-month high.

Key Decisions for Investors

• Investors should adopt a more cautious stance towards UAE non-oil sector assets, given the slowing growth momentum and subdued business optimism reported for May.
• Monitor developments related to US tariffs and competitive pressures, as these are identified as headwinds impacting the sector's performance.
• Consider the relative resilience of Dubai's non-oil private sector, which maintained its PMI and saw stronger new order growth, as a potential differentiator within UAE-focused allocations.
• Evaluate inventory management strategies of companies within the sector, as the survey highlighted a record decline in holdings amidst slowing growth.