Gulf Non-Oil Momentum Persists as Egypt Recovers, Lebanon Falters

Kuwait, the UAE and Qatar continued to post expansion in their non-oil sectors in July, while Egypt edged closer to stabilisation and Lebanon remained under strain.

Kuwait’s non-oil Purchasing Managers’ Index climbed to 53.5 from 53.1 in June, underscoring sustained strength in its private sector. Output and new orders rose significantly, supported by price discounting and marketing efforts. Inflationary pressure eased, with purchase prices and staff costs growing at their slowest pace in six and four months respectively, though firms held off on hiring, leading to growing backlogs. Nonetheless, business sentiment remained upbeat, with expectations of further expansion guiding cautious optimism about future hiring.

In the UAE, non-oil growth moderated as the PMI slipped to 52.9 from June’s 53.5, marking the slowest pace since June 2021. Regional geopolitical tensions weighed on demand, while tourism and trade disruptions dented new business. Still, output expanded sharply as firms tackled workflow bottlenecks. Employment growth cooled to a four-month low, and input cost inflation nudged prices higher, although confidence lingered amid global economic concerns. Dubai bucked the broader trend: its PMI rose to 53.5 from 51.8, supported by stronger sales, indicating a localised rebound.

Qatar maintained positive momentum, with its PMI holding above the 50-point expansion threshold for the 19th consecutive month, reaching 51.4 in July. Employment in the non-energy sector surged—second-highest in eight years—fuelled by wage growth and optimism tied to government investment, tourism, construction, and demographic expansion, despite softer headline output growth.

Egypt’s non-oil sector drew nearer to growth, with the PMI rising to 49.5 from 48.8. The contraction persisted, but improvement in employment—up for the first time in nine months—alongside a gentler decline in output and new orders offered grounds for cautious encouragement. Input costs rose, particularly for cement and fuel, yet remained moderate, while optimism ticked up slightly from the June low.

Lebanon continued to lag. Its PMI fell to 48.9 from 49.2, extending contraction into a fifth month. Demand, especially from abroad, remained weak. Companies cut purchasing to curb costs, and firms stayed pessimistic about the year ahead, citing the fallout from regional instability and the absence of meaningful fiscal stimulus.

Across the Gulf, expectations of stronger economic trajectories remained. A Reuters poll projected rebounds for Gulf economies in 2025, led by higher oil output and diversification efforts. Forecasts include GDP growth of 4.8% for the UAE, and notable upticks for Saudi Arabia, Qatar and Kuwait, underpinned by fiscal prudence and non-oil investments.

Saudi Arabia itself delivered strong results in July. Its non-oil PMI stood at 56.3, down slightly from June’s 57.2 but still sharply expansionary. Robust domestic demand propelled output and job creation—with employment surging following a 14-year high the previous month. Export orders fell for the first time in nine months and output growth slowed to its weakest since early 2022. Input cost inflation eased marginally, though labour costs remained elevated; sentiment remained positive, albeit at its weakest since July 2024.

High-frequency financial indicators reflected these dynamics. Gulf markets advanced as investors sized up potential U. S. interest-rate cuts, with equities buoyed by improved non-oil sector activity. Notably, Dubai’s index rose on back of its non-oil rebound; Egypt’s benchmark surged to a record high amid signs of private-sector stabilisation.