The UAE’s non-oil private sector continued to expand in May despite mounting geopolitical tensions in the Middle East and the most severe supply-chain disruptions since the Covid-19 pandemic, underscoring the resilience of the country’s diversified economy and the adaptability of businesses operating in the region.
The latest S&P Global UAE Purchasing Managers’ Index (PMI) rose to 52.6 in May from 52.1 in April, signalling a further improvement in business conditions across the non-oil economy. Although the pace of expansion remained below the long-term survey average of 54.3, the increase points to continued growth at a time when businesses worldwide are grappling with heightened uncertainty and disrupted trade routes.
The latest reading also marked a three-month high for output growth, reflecting the ability of UAE businesses to sustain activity despite elevated transportation costs, longer delivery times and weaker export demand.
Around 21 per cent of surveyed companies reported higher business activity during May, citing stronger domestic demand, project expansions and the positive impact of government-led initiatives. These gains helped offset the challenges faced by firms affected by supply-chain disruptions and rising operating expenses.
The report suggests that the UAE economy continues to benefit from strong domestic demand, public-sector investment and ongoing economic diversification efforts, even as regional conflicts create temporary obstacles for businesses.
A major challenge in May came from disruptions to maritime trade through the Strait of Hormuz, a critical artery for global commerce. Shipping restrictions resulted in supplier delivery delays reaching their highest level since April 2020, creating bottlenecks across several sectors and increasing procurement costs.
Despite these challenges, businesses demonstrated considerable flexibility by adjusting sourcing strategies, managing inventories more efficiently and maintaining customer relationships amid uncertain conditions.
New business growth remained positive, although at a slower pace than historical averages. Export orders continued to face pressure from logistical constraints and uncertainty surrounding regional developments. However, the pace of decline in export sales moderated significantly compared with April, suggesting that companies are gradually adapting to the new operating environment.
The slowdown in external demand also enabled firms to reduce outstanding workloads, with backlogs of work rising at the slowest pace in almost three years. This provided companies with greater capacity to complete existing orders and improve operational efficiency.
Employment growth remained positive during the month, albeit at a more moderate pace. Businesses cited a combination of slower demand growth, higher costs and increasing automation as factors influencing hiring decisions. Even so, firms continued to add staff, reflecting confidence in future business prospects.
One of the most notable aspects of the May survey was the divergence between rising input costs and pricing strategies. Input costs increased at the second-fastest rate in nearly two years, driven primarily by higher transportation expenses, fuel costs and material prices linked to global supply disruptions.
Yet many companies chose to absorb these increases rather than pass them on to customers. Selling prices declined marginally during the month, marking the first reduction since June 2025, as firms sought to remain competitive and protect market share.
Economists view this pricing discipline as a sign of healthy competition and market maturity rather than weakness, particularly given the challenging external environment.
Dubai’s non-oil economy mirrored the broader national trend. The Dubai PMI improved to 52.0 in May from 51.6 in April, indicating continued expansion in business activity.
While output growth slowed for a fifth consecutive month and reached its weakest level since June 2021, companies continued to report rising activity levels supported by ongoing investment, infrastructure development and steady domestic demand.
New orders in Dubai increased at a modest pace, while supply-chain challenges linked to shipping restrictions led to the sharpest deterioration in supplier delivery times since July 2022. Input costs also rose sharply due to higher transportation, oil and raw material prices.
Despite these pressures, businesses maintained a competitive stance and largely shielded customers from cost increases, helping to sustain demand.
David Owen, principal economist at S&P Global Market Intelligence, said the disruption to maritime trade had created challenges across the economy but stressed that businesses continue to view these difficulties as temporary.
“The continued cut-off to maritime trade had a cascading effect through the UAE economy in May. Input deliveries were delayed to the greatest extent since the height of the Covid-19 pandemic in April 2020,” Owen said.
However, he noted that business confidence remained strong.
“Positively, the longer-term outlook remained strong in May, suggesting that businesses still view these current challenges as temporary and expect growth to bounce back quickly.”
That optimism is reflected in the survey, with 12 per cent of firms expecting higher output over the coming year, supported by strong project pipelines, expanding investment opportunities and expectations of a recovery in regional trade flows.
The latest PMI data reinforces a broader trend evident across the UAE economy in 2026: while geopolitical tensions and supply-chain disruptions may temporarily moderate growth, the country’s diversified economic base, business-friendly environment and ongoing investment programmes continue to provide a solid foundation for sustained expansion.
