The UAE's non-oil business expanded at its softest rate since February 2023 on the back of competitive pressures and lower output, continuing a slowing growth trend that began at the start of the year, according to S&P Global’s UAE Purchasing Managers’ Index (pdf). The index dipped to 54.6 last month, down from 55.3 in May, still remaining above the 50.0 threshold that separates growth from contraction.

Companies saw a “record accumulation” of backlogged orders due to strong demand, the persistent impact of April’s floods, and the ongoing Red Sea shipping crisis. However, the record inventory is “showing signs of easing, a trend that is likely to continue as the country recovers from April's floods and supply chains adapt to the current situation in the Red Sea,” S&P Global Market Intelligence Senior Economist David Owen said.

Still, robust demand is driving sustained expansion: “Companies are still enjoying strong customer demand and robust sales pipelines, which are sustaining output expectations and driving purchasing activity,” Owen said. Strong demand meant businesses saw exports rise at their sharpest level since October last year on the back of increased acquisition of new clients.

Increased inflationary pressures led to price hikes: Businesses raised their selling prices for the second consecutive month, albeit modestly, as they continued to pass increased costs amid inflationary pressures — the highest seen in two years, according to purchasing managers — on to consumers. Alongside the rise in prices, salaries also saw an uptick.

Heightened competition is also driving firms to raise their prices, as businesses are “feeling the pain on their balance sheets and having to protect their margins,” Owen highlighted.

Staffing levels grew last month but at the slowest rate since January as companies look to manage higher costs.

Businesses are still optimistic: Despite falling slightly from May, business sentiment was still “among the best observed in the past four years,” according to the survey. Expectations for future demand growth prompted businesses to hike input purchasing.

DUBAI-

Dubai’s PMI also slowed to its lowest level since February 2023 last month, falling to 54.3 in June, down from 54.7 in May. Despite new orders expanding in June, business activity grew at its most sluggish pace in three years, on the back of “high market competition that had limited their ability to take advantage of strong demand conditions.”

Inflation pushed input prices to rise at their fastest pace in two years, leading to companies charging higher prices for the second consecutive month. On the other end, supplier performance saw a marked improvement, accompanied by an increase in staffing levels and positive sentiment.

ELSEWHERE IN THE REGION-

  • Saudi Arabia’s PMI slumped to 55.0 in June, its lowest level in over two years, according to S&P’s PMI (pdf) ;
  • Qatar’s PMI (pdf) expanded at its fastest pace in almost two years to 55.9 in June, amid improved business conditions.
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