The UAE’s non-oil private sector recorded its slowest pace of expansion in more than five years during June, as lingering geopolitical uncertainty in the Middle East, coupled with cautious consumer spending and rising business costs, weighed on economic activity.
According to the latest S&P Global Purchasing Managers’ Index (PMI), the seasonally adjusted headline reading slipped to 50.8 in June, down from 52.6 in May. While the figure remained above the 50-point threshold that signals growth, it marked the weakest performance since early 2021 and reflected a significant cooling in business momentum.
Businesses continued to face the after-effects of the Iran-related regional tensions, which disrupted customer demand and intensified competitive pressures. Although resilient domestic consumption, government-backed investments, ongoing construction projects and expanding digital services helped cushion the slowdown, these positive factors were insufficient to counter the broader decline in activity.
New order volumes improved slightly compared to the previous month, reaching a three-month high, but remained well below long-term averages. Many companies reported that customers postponed purchasing decisions amid uncertainty, while softer tourism activity and elevated prices further dampened demand.
The slowdown also filtered into the labour market. Employment declined for the first time in more than four years, with staffing levels falling at the fastest pace since August 2020. The overall business environment weakened to its lowest level since February 2021.
Workloads remained manageable, resulting in only a modest accumulation of outstanding business. Firms experiencing delays pointed to shipment disruptions and fluctuations in raw material costs as key reasons for slower production planning.
There was, however, some relief on the supply chain front. Delivery times improved at the quickest pace in four months as shipping conditions through the Strait of Hormuz began stabilising, easing earlier logistical bottlenecks.
Cost pressures remained elevated during the second quarter. Companies reported sharp increases in input expenses driven by higher transportation charges and commodity prices. While many businesses increased selling prices in June, those adjustments were relatively modest and failed to fully offset the rise in operating costs, keeping pressure on profit margins.
Despite the softer economic backdrop, businesses generally maintained a positive outlook, supported by sustained public-sector investment. However, firms with greater exposure to international markets continued to express caution over external risks.
Economists noted that easing geopolitical tensions could support a gradual recovery in customer demand and further improvements in supply chains, particularly if shipping activity through the Strait of Hormuz continues to normalise.
Dubai Records Similar Slowdown
Dubai’s non-oil private sector mirrored the broader national trend. The city’s PMI declined from 52.0 in May to 50.7 in June, its weakest reading since January 2021.
Companies attributed the moderation primarily to slower demand growth, delayed customer spending and reduced travel linked to regional tensions. Even so, businesses continued expanding output, with production increasing at its strongest pace since March.
Higher operating costs and easing capacity pressures nevertheless prompted firms to reduce headcount, resulting in the fastest pace of job cuts in the emirate in nearly five and a half years.
