UAE Non-Oil Growth Stumbles as Firms Manage Flood Fallout

Dubai, United Arab Emirates - The United Arab Emirates' non-oil economy, a key driver of the nation's diversification efforts, witnessed a slowdown in growth during May. This setback comes as businesses navigated disruptions caused by the record-breaking floods that struck the region in April, according to a recently released purchasing managers' index (PMI) survey.

The seasonally adjusted S&P Global UAE Purchasing Managers' Index dipped to a 16-month low of 55. 3 in May, although it remained unchanged from April's reading. While this indicates a moderation in growth compared to the past, the figure is still above the long-run average of 54. 4, signifying a positive trajectory in business conditions.

"UAE non-oil companies continued to face mounting pressure on their business capacity in May, " said David Owen, senior economist at S&P Global Market Intelligence, commenting on the survey results. "The latest PMI data revealed the highest ever increase in work backlogs, which can be partly attributed to the unprecedented rainfall and subsequent flooding in April. "

Owen noted that capacity constraints started to emerge even before the floods, as companies grappled with robust sales pipelines in March. Supply chain challenges stemming from the Red Sea crisis further amplified these pressures.

The PMI survey did offer a glimmer of optimism. It indicated that demand picked up in May after a temporary lull in April due to the floods. However, the backlog of uncompleted work continued to pose a significant challenge, potentially hindering future growth prospects.

The UAE has been actively trying to diversify its economy away from its dependence on hydrocarbon resources. The non-oil sector has emerged as a vital growth engine, encompassing a wide range of industries such as tourism, logistics, and manufacturing. The government has introduced various initiatives to boost this sector, including the development of free zones and investment in infrastructure projects.

While the recent floods delivered a temporary setback, the UAE's non-oil sector is expected to regain its momentum in the coming months. The underlying fundamentals for growth remain strong, with the government's ongoing diversification efforts continuing to provide a supportive backdrop. However, the ability of businesses to manage backlogs and navigate potential supply chain disruptions will be crucial in determining the pace of the sector's recovery.

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