UAE businesses stay resilient amid global challenges

Khaleej Times

3 days ago

The UAE's non-oil private sector is traversing its softest growth in nearly four years, with a key indicator marking its lowest level in May 2025 since September 2021.
Despite this slowdown, the sector remains healthy, buoyed by strong demand, strategic diversification, and optimism in global trade, as highlighted by recent survey data. While challenges like global economic uncertainty and US tariffs loom, UAE businesses are adapting with agility, maintaining a competitive edge in a shifting landscape.
The S&P Global UAE Purchasing Managers' Index (PMI) dropped to 53.3 in May 2025, down from 54.0 in April. The PMI stayed above the 50.0 no-change threshold, signalling continued expansion. However, the pace of growth in new orders and output has eased, with output growth hitting its weakest mark in 44 months.
Companies cited robust client demand, effective marketing strategies, and diverse product offerings as drivers of new orders, though global trade disruptions, particularly US tariffs, tempered momentum for some. The Dubai PMI, holding steady at 52.9, echoed this trend, reflecting solid but slower expansion, with new orders reaching a four-month high thanks to improved client confidence and competitive pricing.
A striking development was the record decline in input stocks, the sharpest in nearly 16 years of survey data, as firms streamlined inventories amid slowing growth and supply constraints. Purchasing activity rose at its slowest pace in 28 months, reflecting cautious stock management. Conversely, employment saw a notable uptick, with job creation reaching a one-year high as firms responded to rising workloads. Backlogs of work, while still significant, grew at their slowest rate in 16 months, indicating a slight easing of pressure on capacity.
Inflationary pressures softened, offering some relief. Input cost inflation fell to its lowest since December 2023, with only five per cent of firms reporting higher costs, driven by pricier raw materials and transport. Selling prices rose marginally, as some companies passed on costs while others offered discounts to stay competitive. This aligns with broader trends of declining inflationary pressures, a positive signal for businesses navigating cost challenges.
Despite the slowdown, UAE firms remain optimistic about global trade. According to HSBC's 2025 Global Trade Pulse Survey, conducted between April 30 and May 12, 2025, 94 per cent of UAE businesses anticipate strong growth in cross-border activities, outpacing global peers. This resilience stands out against a cautious global backdrop, where two-thirds of firms worldwide report cost increases from trade uncertainties. UAE companies, facing an average seven per cent rise in operational expenses due to tariffs, are countering challenges through advanced planning, digital innovation, and market diversification. This positions the UAE as a leader in global trade optimism, even as geopolitical uncertainties ripple worldwide.
Business confidence, however, showed signs of moderation. Only 10 per cent of surveyed firms expect expansion in the year ahead, the lowest optimism since January 2025. This tempered outlook, combined with sharp inventory cuts, suggests firms are bracing for softer growth. Yet, the UAE's non-oil sector continues to perform well, supported by strong fundamentals.
David Owen, senior economist at S&P Global Market Intelligence, noted: 'While competitive pressures and weaker trade amid US tariffs have weighed on growth, the UAE economy remains robust. The survey data points to easing momentum but also highlights falling inflationary pressures, offering a silver lining.'
'From an overall perspective, the survey signals that the UAE economy is performing well, but the softer increases in output and new orders hint at momentum easing. Furthermore, the sharp cutback in stocks (which was the fastest on record) and the broadly subdued outlook for activity suggest that firms are gearing up for softer growth,' said Owen.
'Positively, the survey data backs up the trend of falling inflationary pressures, as businesses saw input costs rise at their slowest rate since the end of 2023,' he added.