The UAE’s non-oil private sector experienced its weakest June performance in over five years, as geopolitical friction from the Iran conflict and heightened market competition weighed heavily on client activity. The seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) dropped from 52.6 in May to 50.8 in June, hovering just above the 50.0 threshold that separates expansion from contraction. This deceleration triggered a sharp labor market contraction, with employment numbers falling at the fastest clip since August 2020, while overall operating conditions reached their lowest point since February 2021.
While resilient domestic outlays and public infrastructure spending offered some stability—supported by construction projects, a steady sales pipeline, and expanding digital services—these pockets of resilience could not fully counter the broader economic slowdown. Although new business acquisition ticked up to a three-month high, it remained well below its historical average as clients deferred spending decisions. Demand was further dampended by a sluggish tourism sector and elevated price pressures. On the logistical front, backlogs grew at their second-slowest pace in two and a half years, though some companies reported production delays linked to raw material price volatility and shipping bottlenecks. Conversely, overall supply chain timelines improved at their quickest rate in four months as shipping traffic normalized through the Strait of Hormuz.
Financially, non-oil firms faced a pronounced squeeze on profitability at the close of the second quarter. Input costs escalated sharply, driven by volatile commodity prices and rising transport fees. While businesses raised their selling prices to compensate, competitive pressures meant these output increases were modest and failed to keep pace with input inflation. Despite these tight margins, overarching business confidence remained stable, anchored by robust state investments. S&P Global Market Intelligence noted that recent de-escalation trends in regional tensions should provide a pathway for demand recovery and supply chain normalization moving forward.
Dubai Economy Mirrors Slowdown
A parallel deceleration hit Dubai’s non-oil private sector, where the headline PMI dropped from 52.0 in May to 50.7 in June, marking its weakest expansion since January 2021. Regional conflict and reduced travel activity constrained sales growth, forcing businesses to navigate persistent client spending delays. While Dubai firms managed to boost output at the fastest rate seen since March, escalating operating costs and minimal capacity strain led to a workforce reduction, with the pace of job cuts hitting a 5.5-year high.
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