UAE's non-oil sector sees steady growth in February as output, new orders rise: PMI

The UAE's non-oil private sector maintained its growth momentum in February, with the growth rate approaching the nine-month high recorded in December last year. Last month's growth was mainly driven by a significant increase in new business, which in turn boosted output significantly. In addition, input inventories steadily increased, but labor constraints and delays in payment processes led to a further increase in backlogs.

The seasonally adjusted S&P Global UAE Purchasing Managers' Index (PMI) remained at 55.0 in February, indicating a significant improvement in the health of the non-oil economy. The index is slightly above its long-term average of 54.4. Meanwhile, the Dubai PMI fell from 55.3 in January to 54.3 in February, a three-month low, indicating a slower rate of improvement in the health of the non-oil sector. Nevertheless, the overall improvement remained solid, driven by strong expansion in new orders and output.

David Owen, Senior Economist at S&P Global Market Intelligence, said: "February was another solid month for UAE non-oil businesses, with the latest survey data showing further strong growth in new orders and output. The PMI reading of 55.0 indicates that growth has remained relatively stable since reaching recent highs at the end of last year."

In February, the growth momentum of commercial activity strengthened, above historical trends. According to the monitoring company, production increased in response to the growth of new business. Approximately 29% of surveyed companies reported higher activity than in January, while the proportion of companies with declining activity was 5%. However, concerns about domestic and international competition posed a significant challenge to business confidence in the UAE's non-oil private sector, leading companies to be cautious about raising prices while seeking to boost sales. However, these efforts were somewhat hampered by the first increase in cost pressures in seven months.

Owen added: "Companies continue to feel the pressure of intense competition, which is limiting price increases. Nevertheless, growing cost pressures led to a slight acceleration in sales price inflation in February." It was reported that improved market conditions, advertising campaigns, and suppressed output price pressures boosted demand levels in February. Order volumes grew at a faster rate, although the momentum has weakened since January.

On the other hand, some companies in the UAE's non-oil private sector stated that competition from domestic and international markets inhibited growth. Order growth led to an increase in input purchases in mid-Q1, although this was the weakest in three months. Input inventories also increased, reaching their highest level in more than a year. Concerns about international competition and capacity issues remain major obstacles for companies assessing their prospects. Approximately 10% of UAE companies expect activity to increase in the next 12 months, well below the long-term trend. Nevertheless, market sentiment remains optimistic and has even rebounded from recent lows in January.

Meanwhile, input costs in the non-oil sector rose at a faster rate in February, marking the first acceleration in inflation since July 2024. Despite some efforts to maintain price competitiveness, non-oil companies raised output fees for the second consecutive month. The latest increase was small, but it was also the largest since last September.

Owen added: "While strong growth in commercial activity suggests that orders should eventually be fulfilled, other factors, such as weak job creation and administrative delays, pose risks to this outlook. In addition, companies continue to report difficulties in obtaining payments from customers, a problem that appears to be deeply rooted in the broader market and may require policy action to address."