UAE’s non-oil private sector experienced fluctuating growth in early 2025, culminating in a significant slowdown in May. Despite robust demand earlier in the year, competitive pressures and the impact of U.S. tariffs contributed to the weakest growth rate in nearly four years, raising concerns about future momentum.
Shifting Economic Tides: UAE Non-Oil Sector Faces Headwinds
The UAE’s non-oil private sector, a key indicator of the nation’s economic diversification efforts, has shown a mixed performance in the first half of 2025. After a robust start to the year, growth moderated, with May marking a notable slowdown.
January: A Strong Start
- The year began with strong expansion, as the S&P Global UAE Purchasing Managers’ Index (PMI) registered 55.0 in January, slightly down from December’s 55.4 but still indicating robust growth.
- New orders and business activity saw sharp increases, supported by favorable market conditions and easing cost pressures.
- Despite this, capacity pressures persisted, and business optimism, while positive, was at its lowest since December 2022 due to strong competition and cash flow concerns.
March: Moderation Sets In
- Growth began to moderate in March, with the PMI slipping to 54.0 from 55.0 in February, marking the slowest pace since September.
- New order growth slowed for the third consecutive month, reaching its weakest reading since October.
- Employment growth hit a nearly three-year low, as firms struggled to find suitable candidates, despite ramping up input purchases.
April: Steady Growth and Increased Hiring
- April saw a stabilization in growth, with the PMI holding steady at 54.0.
- Employment rose at its fastest pace in 11 months, as firms aimed to reduce workloads and support new business growth.
- International demand showed its strongest upturn in five months, contributing to a slight quickening in new order growth.
May: Significant Slowdown Amidst Tariff Pressures
- May witnessed a substantial deceleration, with the PMI falling to 53.3, its lowest reading since September 2021 and the weakest pace of growth in nearly four years.
- While demand remained strong, competitive pressures and the impact of U.S. tariffs were cited as contributing factors to the slowdown.
- Output expansion was the slowest in 44 months, and business expectations for future output reached their lowest level since January.
- Inventories saw a record decline as firms streamlined holdings, and the accumulation of backlogs eased to a 16-month low.
Key Takeaways
- Fluctuating Growth: The non-oil sector experienced a dynamic period, starting strong but facing increasing headwinds.
- Impact of Tariffs: U.S. tariffs and competitive pressures played a significant role in the May slowdown.
- Employment Trends: While hiring picked up in April, overall employment growth has been modest, with firms struggling to find suitable candidates.
- Optimism Wanes: Business optimism for future output has declined, reflecting concerns about sustained growth momentum.
Despite the recent slowdown, the UAE economy’s fundamentals remain solid, with continued efforts towards diversification. However, the latest data suggests a need for vigilance regarding external pressures and their potential impact on the non-oil sector’s trajectory.
Sources
- UAE non-oil business sector growth slows in March, PMI shows, Reuters.
- UAE non-oil business growth slows in May, PMI shows, Reuters.
- UAE non-oil business sector expands robustly in January, PMI shows, Reuters.
- UAE non-oil business grows steadily in April as hiring speeds up, PMI shows, Reuters.
- UAE non-oil business activity down in May amid tariff pressures, The National.
