UAE non-oil output expands at lowest rate in three years, S&P Global data shows

Gold Souk in Dubai. The UAE's non-oil sector industries, such as tourism, are seeing strong growth. Pawan Singh / The National

Business activity in the UAE continued to expand in September, although the pace of output growth in its non-oil private sector was the slowest in three years.

The S&P Global PMI Index for the UAE dipped to 53.8 in September from 54.2 in August. Although well above the 50 neutral mark, the index was at its second lowest in three years, beating only July's reading of 53.7.

While businesses surveyed indicated a rise in output last month on the back of stronger demand, the pace of growth slowed down to the lowest level since September 2021, S&P Global Market Intelligence said in a report on Thursday.

New business received by non-oil companies in the Emirates rose at a sharp pace in September, helped by an increase in export sales. However, the rate of expansion decelerated and was the second-weakest in a year and a half.

“Businesses faced further challenges with the completion of new work, despite a slowing of sales growth and a strong uplift in purchases,” David Owen, senior economist at S&P Global Market Intelligence, said.

“Competition remained another area of difficulty, with panellists [surveyed] reporting that tougher market conditions had led to a more cautious outlook for the upcoming year – output expectations are now at their lowest since early 2023.”

A recent trend of selling price increases persisted in September, as businesses raised charges at the fastest pace since January 2018. The uplift followed another sharp increase in rates, with shipping, petrol, technology and maintenance costs often reported as sources of inflationary pressures, according to the survey findings.

Despite the slowing pace of growth in the UAE’s non-oil private sector, the overall economy is set to maintain robust growth momentum this year.

The country's economy, which grew by 3.4 per cent in the first quarter of 2024, is expected to expand by 4 per cent this year on the back of a boost from its non-oil sector, according to the latest data from the Central Bank of the UAE.

The non-oil sector is projected to remain strong at 5.2 per cent in 2024 and 5.3 per cent in 2025, driven mainly by efforts to boost foreign investments and continuing structural reforms such as 100 per cent ownership of foreign businesses and tax reforms, the banking regulator said.

The Emirates also reported a record Dh1.4 trillion ($381.5 billion) in non-oil foreign trade in the first six months of this year, which underpins the recent flurry of economic and trade deals it has signed with partners across continents.

Saudi Arabia

Non-oil private sector business conditions in Saudi Arabia saw its best improvement in four months at the end of the third quarter.

The seasonally adjusted Riyad Bank purchasing managers’ index ­– a crucial gauge of the kingdom’s non-oil economy – climbed to 56.3 in September, up from 54.8 in August. The benchmark is well above the neutral 50 mark that separates non-oil economic growth from contraction.

Saudi Arabia’s PMI rose for the second consecutive month in September, hitting the highest reading since May. The latest reading underpins a “notable acceleration in non-oil private sector growth”, Naif Al Ghaith, chief economist at Riyad Bank, said. “Businesses are responding to stronger domestic demand, which plays a critical role in reducing Saudi Arabia’s dependence on oil revenues.”

The upward trend in activity “signals rising business confidence, which reflects a healthy environment for investments, job creation, and overall economic stability”, he added.

The 1.5-point rise in the PMI Index was supported by sharp expansions in output and new orders, as well as a tightening of supply conditions in the kingdom. After rising at a softest pace since early 2022 in August, output levels surged in the latest survey period, driven by higher demand and approval of new projects in Saudi Arabia.

“This growth in the non-oil sector is particularly significant given the current context of oil production cuts and declining global oil prices,” Mr Al Ghaith said. “As oil revenues come under pressure, the robust performance of the non-oil private sector serves as a buffer, helping to mitigate the potential impact on the country's economic health.”

Saudi Arabia, the world’s leading oil exporter, is pushing to diversify its economy away from oil under its Vision 2030 programme. Among the central planks of the overarching economic reform agenda are supporting the development of sectors including technology, property, tourism and infrastructure, boosting employment, expanding the non-oil industrial base as well as expanding the kingdom’s financial markets and increasing foreign direct investment.

The kingdom expects its overall economy to expand by 0.8 per cent this year, supported by a 3.7 per cent growth its non-oil sector, the finance ministry said this week. The economy is projected to grow by 4.6 per cent in 2025, 3.5 per cent in 2026 and 4.7 per cent in 2027.