Market Update: UAE non-oil growth at 1-year high, as Qatar, Lebanon business conditions improve: PMI report – Full Analysis

RIYADH: The UAE’s non-oil private sector expanded to a 12-month high in February on stronger business activity and new orders, while Qatar and Lebanon also reported improving operating conditions.

In its latest Purchasing Managers’ Index report, S&P Global revealed that the UAE’s PMI rose to 55 in February from 54.9 in January.

Dubai’s PMI slipped to 54.6 in February from 55.9 observed in the previous month, while Lebanon saw a 1.1-point rise to 51.2 over the period.

Any PMI reading above 50 indicates expansion, while a reading below 50 reflects contraction.

The upturn of the non-oil private sector in the UAE aligns with the broader trend observed in the Gulf Cooperation Council region, where countries, including Saudi Arabia, are pursuing economic diversification efforts to reduce reliance on crude revenues.

In January, the Kingdom’s PMI stood at 56.3, the highest in the region, while Kuwait recorded a reading of 54.5.

“The UAE PMI signalled the strongest growth in non-oil business conditions for a year in February, with output increasing rapidly in response to strong inflows of new work. So far, the data points to an encouraging picture for the domestic economy in the first quarter of this year,” said David Owen, senior economist at S&P Global Market Intelligence.

According to the report, stronger output among non-oil sectors was driven by higher demand, successful contract wins, and growth in key sectors including construction, real estate, logistics, and technology.

Additional factors that contributed to this growth include rising tourist arrivals, the expansion of e-commerce channels, and growing demand for AI-related products.

Mahesh Shahdadpuri, group chairman at TASC Outsourcing, told Arab News the UAE’s non-oil growth is being driven by financial services, tourism, and technology, as well as logistics and advanced manufacturing, aligned with the country’s diversification strategy.

“Given continued policy support and steady foreign investment inflows, this momentum appears long-term and firmly rooted in the UAE’s diversification strategy,” said Shahdadpuri.

Echoing similar views, Head of Trading for the Middle East and North Africa region at Saxo Bank, Hamza Dweik, said that construction and real estate activities also play a major role in strengthening the UAE’s non-oil economy, supported by population growth and ongoing infrastructure investment.

“What stands out in the latest PMI data is that growth is broad‑based rather than concentrated in a single sector. This makes it more sustainable than past cycles that relied heavily on one or two growth engines,” said Dweik.

Andreas Hassellof, CEO of Ombori, told Arab News that the UAE’s non-oil activities have emerged as the primary engine of the country’s economic growth.

“Trade continues to anchor activity, supported by the country’s position as a regional logistics and re-export hub. Financial services are expanding steadily as the UAE strengthens its role in capital markets, private wealth, and cross-border investment flows. Manufacturing growth reflects the country’s industrial strategy and its focus on higher value production,” said Hassellof.

According to Hassellof, the real estate sector in the Emirates deserves particular emphasis as it connects finance, infrastructure development, and household formation.

Strong demand in residential and commercial segments has supported banking activity, professional services, and urban development.

Hassellof further said that large-scale investment in artificial intelligence and advanced technology is becoming a core growth driver rather than a secondary theme.

While international orders also contributed to the expansion of the non-oil sector, the increase in export sales remained modest, suggesting that sales growth was mainly driven by domestic demand.

The analysis highlighted that employment numbers rose modestly in February, marking the largest uplift since last November.

UAE non-oil businesses successfully increased their inventories of purchased inputs for the second month running, supported by another rapid improvement in supplier delivery times.

Dweik said that non-oil businesses in the Emirates are responding to cost pressures through a combination of efficiency gains, selective price adjustments, and productivity improvements rather than broad cost‑cutting.

The Saxo Bank official added that firms remain confident enough to continue hiring, which indicates that demand conditions are strong and margins, while under pressure, remain manageable.

“On the investment side, companies appear focused on technology, automation, and service expansion to protect competitiveness. This approach supports employment and helps sustain growth even in a more competitive environment,” said Dweik.

Imran Khan, founder and CEO of The PIXL Group, told Arab News that rising costs and competition are inevitable in a growing economy, but they often signal market maturity rather than pressure.

“The UAE’s non-oil growth continues to be very sustainable because it is built on diversification, infrastructure, and policy stability rather than short-term market cycles,” said Khan.

Regarding the future outlook, non-oil firms in the UAE expressed optimism, although the level of confidence declined from the recent high in January.

“The outlook is positive, as demand has continued to pressure business capacity, suggesting additional expansions in output and employment may be necessary,” added Owen.

Shahdadpuri echoed similar sentiments and said that strong government reforms, pro-business regulations, infrastructure spending, and continued foreign direct investment will underpin growth in the coming year.

He warned that global economic uncertainty, geopolitical risks, and cost pressures remain factors businesses must actively manage.

Dweik said that the future optimism among UAE non-energy firms relies on support factors including continued population growth, strong tourism and travel flows, infrastructure spending, and ongoing reforms aimed at attracting investment and talent.

“The resilience shown in recent PMI readings suggests that the non‑oil economy is well‑positioned to absorb moderate external shocks, provided conditions do not deteriorate materially,” added Dweik.

Dubai PMI

In the same report, S&P Global revealed that in Dubai rates of output and new order growth lost momentum, but remained sharp overall, with firms highlighting increased opportunities and new projects.

The release highlighted that demand was also lifted by various factors, including marketing activities, AI adoption, population growth and increased tourism.

Khan said that the fundamentals that underpin Dubai’s economy remain intact amid the ongoing tensions in the region.

“While we acknowledge the gravity of the current situation, it’s important to view this through the lens of Dubai’s proven resilience. The real estate market here has historically navigated complex cycles, consistently stabilising, recalibrating, and emerging stronger,” said Khan.

He added: “From our experience, businesses that remain agile, innovate, and adapt to market dynamics are best positioned to navigate any risks while capitalizing on the growth opportunities that the UAE continues to offer.”

Non-oil business conditions improve in Qatar

In a separate report, S&P Global said that Qatar’s PMI rose from 50.4 in January to 50.6 in February, signalling an overall improvement in business conditions in the non-energy private sector.

The latest reading was, however, still below the long-run average of 52.1 since 2017.

The rate of job creation remained strong in February and picked up from January’s nine-month low. Higher staffing levels were linked to the expansion of capacity and sales support.

“The PMI edged up to a three-month high of 50.6 in February, but the strength of the employment component continued to flatter the overall picture. Output, new orders and stocks of purchases declined, and suppliers’ delivery times shortened,” said Trevor Balchin, economics director at S&P Global Market Intelligence.

Although output and new orders both fell further in February, the 12-month business outlook improved to a six-month high.

Qatari companies raised wages at a marked pace in February, with the rate of inflation the strongest in seven months.

Supply chains continued to improve in February, with a moderate reduction in input delivery times.

“Beyond current output and demand, other survey indicators were more positive. Outstanding business rose at the fastest rate in four months, and output expectations were the highest in six months,” said Balchin.

PMI rebounds in Lebanon

In another report, S&P Global revealed that operating conditions in the Lebanese private sector economy improved in February amid solid increases in both new business and output.

This growth was driven by rising new orders and stronger output amid inflationary pressures.

“Despite rising inflation, staff costs remained almost stagnant, so real wages slipped relative to inflation. The 12-month outlook index stayed in contraction but climbed to a 6-month high,” said Mira Said, senior research analyst at BLOMINVEST Bank.

She added: “Economic and political uncertainties continue to weigh on expectations, though rising US-Iran tensions seem to have raised hopes of a breakthrough in the Lebanese crisis.”