The UAE’s non-oil activity kicked off 2025 with a slight slowdown in January from the nine-month high achieved in December, with the sector continuing to see robust expansions in activity and new business, according to S&P Global’s UAE PMI (pdf). The headline figure reached 55.0, down from 55.4 in December. This is the first dip in the UAE’s PMI in three months.

REMEMBER- The all-important 50.0 mark is the threshold separating contraction from growth. Anything above 50 denotes expansion, while anything below indicates contraction.

New orders dropped slightly from last month’s nine-month high: The new orders subindex eased slightly to 59.0 in January, down from 59.3 in the previous month, with businesses reporting an uplift in domestic demand, Reuters reports. Meanwhile, growth in new export orders nearly stalled, with businesses reporting that the rise in demand was mainly domestic-driven. Consequently, output rates rose sharply on the back of a strong sales upturn.

Improved sales had little impact on hiring, with companies reporting a negligible increase in new employment. “A persistently low rate of employment growth suggests that firms are lacking the ability to hire in order to tackle backlog issues,” S&P Global senior economist David Owen said.

Cooling inflation caused firms to up input purchases: Input cost inflation fell to a 13-month low in January, which came “despite evidence of higher costs for transport and machinery” as well as a faster rise in salaries. A slowdown in inflation helped businesses boost their purchases of inputs, which firms used to “service existing orders rather than build up warehouses,” with inventories only seeing marginal growth during the month. “Input resources similarly remain weak, which seems to be aggravating capacity pressures as work-in-hand rose at the quickest pace in eight months in January,” according to Owen.

Business sentiment was low despite positive results: Firms’ optimism about future activity in the UAE hit its lowest mark in over two years, with just 9% of participants predicting growth over the next year. Many firms cited “robust competition” as one of the key factors holding back optimism in the country. “Strong competition and cash flow concerns arising from heavy backlogs have appeared to sow doubt among firms that they can continue to boost their revenues, underlining efforts to reduce the gap between output and input prices,” Owen said.

“The softening of business sentiment seems to be largely due to competitive pressures and perhaps uncertainty about the external environment. The overall PMI continues to indicate robust expansion in the non-oil sector, registering 55.0, the second-highest reading since May 2024,” GCC Economist and Khalij Economics Director Justin Alexander told EnterpriseAM UAE.

International institutions are positive about the UAE’s non-oil activity this year: Fitch Solutions’ research unit BMI sees the non-oil sector growing further in 2025 on the back of easing inflationary pressures, especially in the transportation sector, lower borrowing costs, and large infrastructure and construction projects across all emirates, BMI’s MENA Senior Country Risk Analyst Mariette Hanna said last month. Meanwhile, Moody’s sees the UAE’s non-oil economy growing by over 5% this year, with the agency saying that the UAE’s growth will be driven by infrastructure projects and economic diversification initiatives.

“Non-oil trade will continue to benefit from the signing of the comprehensive economic partnership agreements,” Hanna said, adding that recent data showed that non-oil trade expanded by 15% y-o-y in value and 6.5% y-o-y in volume in the first nine months of 2024.

REFRESHER ON LAST YEAR’S NON-OIL ACTIVITY- Non-oil private sector activity grew at its lowest rate in five months in January 2024, with the first reading of the year coming in at 56.6. It would then move up to 57.1 in February before dropping back slightly to 56.9 in March. The pace of expansion gradually decelerated between April (55.3) and July (53.7), amid disruptions due to the April floods, before regaining momentum in August (54.2). This was followed by a slight dip in September (53.8), from which the economy would rebound in October (54.1) and then further to 54.2 in November, before capping off the year with its best performance in nine months in December (55.4).

MEANWHILE, IN DUBAI-

Business conditions in Dubai also improved at a slightly slower pace in January, with the Dubai PMI slipping to 55.3, marginally below December’s nine-month high of 55.5. Total business activity expanded due to favourable market conditions and improvements in

sales and customer bases, creating new business inflows. Cost pressures also cooled down, backed by a decline in input price inflation to a three-month low.

Employment also rose, but only at a slight rate due to a “a subdued outlook for future business activity,” while the pace of input price inflation fell to a three-month low.

Expectations for the coming year are low in Dubai: Output expectations among businesses in the emirate dropped to their lowest level in over four years, according to the report.

ELSEWHERE IN THE REGION-

Non-oil sector growth in Saudi Arabia recorded its best performance since September 2014 in January, with the Kingdom seeing the fastest increase in total new orders since June 2011. The seasonally adjusted headline figure inched up to 60.5, up from 58.4 in December, moving it well beyond the 50.0 mark that separates growth from contraction.

Egypt’s non-oil private activity expanded at its highest rate in over four years in January, buoyed by a solid increase in output and sales volumes. The headline reading rose to 50.7 from 48.1 in December, marking the second time the country's non-oil activity has hit the expansion territory since November 2020.

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