The growth of the UAE’s non-oil business sector experienced a slowdown in September, marking the weakest expansion in three years. The seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) dipped to 53.8 in September from 54.2 in August. This decline reflects a reduction in new orders and fewer employment opportunities, impacting overall output. Despite the slowdown, the PMI remains above the 50.0 mark, indicating continued expansion, albeit at a slower pace. The data highlights the challenges faced by the non-oil sector amid tougher market conditions and rising input costs.
Decline in New Orders and Employment
The slowdown in the UAE’s non-oil business sector is primarily attributed to a decline in new orders and employment. Businesses reported a reduction in new orders, which has been a key driver of growth in previous months. The decrease in new business levels has led to a cautious outlook among firms, with many opting to limit hiring and focus on maximizing revenues from existing operations.
Employment growth in the non-oil sector has also slowed, with the mildest rise in total employment since the end of 2022. This reduction in hiring is a response to the softer demand and increased competition in the market. Businesses are adopting a more conservative approach to workforce expansion, prioritizing cost management and efficiency improvements to navigate the challenging economic environment.
The impact of these factors is evident in the overall business activity, which rose at the slowest pace since September 2021. Despite the challenges, some firms have managed to maintain growth by leveraging strong local market conditions and a solid increase in export sales. However, the overall sentiment remains cautious as businesses navigate the uncertainties in the market.
Rising Input Costs and Inflation
Another significant factor contributing to the slowdown is the rise in input costs and inflation. Businesses have reported high price pressures from various sources, including transportation, machinery, technology, petrol, and labor. These increased costs have put a strain on profit margins, prompting firms to raise output charges at the fastest rate in over six-and-a-half years.
The rate of overall cost inflation, however, eased to the weakest since April, providing some relief to businesses. Despite this, the persistent high input costs continue to be a drag on the non-oil economy. Firms are finding it challenging to balance the need to remain competitive with the necessity to pass on some of the increased costs to customers.
The inflationary pressures have also affected the supply chain, with some reports indicating that customs duties have delayed input deliveries. This has led to a slower improvement in supplier performance compared to previous months. The backlogs of work reached a four-month high, indicating that businesses are struggling to keep up with demand amid the rising costs and supply chain disruptions.
Future Outlook and Strategic Responses
Looking ahead, the future outlook for the UAE’s non-oil business sector remains mixed. While the PMI indicates continued expansion, the slower pace of growth and rising input costs present significant challenges. Businesses are likely to adopt more strategic responses to navigate these challenges, focusing on cost management, efficiency improvements, and leveraging strong local market conditions.
The cautious outlook among firms suggests that they will continue to prioritize revenue maximization and cost control. This approach may involve streamlining operations, optimizing supply chains, and exploring new markets to drive growth. Additionally, businesses may invest in technology and innovation to enhance productivity and reduce costs.
The government’s role in supporting the non-oil sector will also be crucial. Policies aimed at reducing regulatory burdens, improving infrastructure, and providing financial support can help businesses navigate the challenging economic environment. By fostering a conducive business environment, the government can support the non-oil sector’s growth and contribute to the overall economic diversification efforts.
