RIYADH: Non-oil private sector activity across the UAE, Egypt and Kuwait faced continued headwinds in May, as supply disruptions, regional geopolitical tensions and cost pressures weighed on business conditions.
The UAE stayed in expansion territory, Egypt recorded another contraction, and Kuwait remained below the 50 no-change mark despite signs that the pace of decline was easing.
The S&P Global Purchasing Managers’ Index showed the UAE’s headline reading rising to 52.6 in May from 52.1 in April, while Egypt’s PMI increased to 47.1 from 46.6.
Kuwait’s PMI also improved, reaching a three-month high of 47.2 from 46.3, but both Egypt and Kuwait continued to signal worsening non-oil business conditions.
In the UAE, non-oil private sector growth remained modest as shipping restrictions and regional tensions constrained output expansion and pushed up operating costs.
The headline PMI stayed above the neutral 50 threshold but remained well below its long-run average of 54.3, indicating that growth was still weaker than typical survey trends.
David Owen, principal economist at S&P Global Market Intelligence, said: “The continued cut-off to maritime trade had a cascading effect through the UAE economy in May.”
He added: “Input deliveries were delayed to the greatest extent since the height of the COVID-19 pandemic in April 2020, with some firms reporting that disruptions to manufacturing production schedules fed through to other sectors.”
The UAE's mixed picture
Output growth in the UAE reached a three-month high, supported by stronger market demand, project expansion and government-backed initiatives.
New business growth remained subdued and close to April’s 62-month low, with export sales declining again, although at a slower pace than in April.
Supplier delivery times lengthened to the greatest extent since April 2020, with respondents citing restrictions in the Strait of Hormuz and knock-on effects across downstream sectors.
Daniel Richards, senior economist at Emirates NBD, said: “Shipping disruption remains a material drag on activity across the region, restricting access to key inputs and hampering exports.”
Purchasing activity fell for the first time in nine months, while inventories contracted slightly despite some companies stockpiling to limit future disruption.
Cost pressures in the UAE remained elevated, with input prices rising at the second-fastest pace in almost two years, driven by higher material costs and transport fees.
Despite this, firms lowered selling prices for the first time since June 2025 as competitive conditions limited their ability to pass costs on to customers. Employment growth also slowed to its weakest pace since last October.
Dubai’s non-oil sector showed only modest improvement in May, with the PMI rising to 52 from 51.6 in April, although output growth weakened for a fifth consecutive month to its slowest pace since June 2021.
The softer PMI reading comes as the UAE’s growth outlook faces pressure from regional disruption, particularly through trade, logistics, tourism, aviation and construction. The World Bank projects real GDP growth of 2.4 percent in 2026, before accelerating to 4.1 percent in 2027.
Egypt contraction extends
In Egypt, non-oil companies recorded another contraction in May as inflationary pressures weighed on demand.
The headline PMI rose to 47.1 from 46.6 in April, but stayed below 50 for the fifth straight month, indicating a continued deterioration in business conditions and pointing to softer economic growth in the second quarter compared with late 2025.
New orders in Egypt fell for a fifth consecutive month, with the rate of decline remaining close to April’s 37-month record, as elevated inflation discouraged customers.
Output also declined sharply, although the pace of contraction eased slightly. Wholesale and retail firms, as well as service providers, reported the sharpest pressure, while manufacturing and construction showed slight rebounds after previous declines.
Input prices in Egypt rose at the fastest pace since January 2023, driven by higher fuel and electricity costs, currency weakness and wage pressures.
Nearly half of surveyed firms reported higher input costs, while selling prices rose at one of the fastest rates on record as companies sought to protect margins.
“Businesses took tangible actions in response to the sharp uplift in cost pressures during May,” Owen said. “The principal move was a historic surge in selling charges, with the rate of output price inflation reaching its second-highest in the survey’s history.”
Egyptian firms also cut jobs at the fastest pace since June 2020, through both redundancies and decisions not to replace departing employees.
Supply-chain disruption intensified, with delivery times lengthening at the fastest rate in nearly four years, while shipping route disruptions and supplier caution linked to price volatility added to operating constraints. Backlogs of work rose at the quickest pace since September 2023.
Despite weaker demand, Egyptian firms reduced purchasing only modestly and recorded the largest build-up in inventories in nearly three years, as some companies sought to hedge against expected future price increases.
Business sentiment improved to its highest level since August 2024, supported by hopes for better economic conditions and exchange-rate recovery, although inflation concerns remained.
Egypt’s PMI data also align with a still-fragile recovery outlook, as inflation and external pressures continue to weigh on demand.
The World Bank expects real GDP growth of 4.3 percent in 2026, supported mainly by private consumption, while warning that geopolitical volatility and slower reforms remain key risks.
Kuwait decline eases
In Kuwait, non-oil private sector conditions continued to deteriorate in May, although at a slower pace than in April.
The headline PMI rose to 47.2 from 46.3, marking a three-month high, while output and new orders both declined at much weaker rates than in the previous month.
Kuwaiti firms continued to cite the effects of the war in the region and competitive pressures as reasons for falling output and new business.
Advertising activity and promotional offers helped improve conditions in some cases, but export orders continued to fall sharply, with the conflict and the closure of the border with Iraq weighing on international demand.
Andrew Harker, economics director at S&P Global Market Intelligence, said: “While companies in Kuwait continued to face challenges linked to the war in the region, there were some signs of a return to more normal business conditions in May.”
He added: “Both output and new orders decreased at much weaker rates, and an improvement in business confidence raises hopes that the non-oil private sector will return to expansion territory in the coming months.”
Kuwaiti companies reduced employment for a third consecutive month as new orders continued to fall, although the decline was modest.
Firms also cut purchasing and inventories, with purchasing activity falling at the fastest pace since April 2020 and stocks of inputs declining at the sharpest rate since the survey began in September 2018.
Input costs in Kuwait rose for the first time since the start of the conflict, with firms reporting higher spending on advertising, rent and spare parts.
The rate of cost inflation was relatively muted, but companies still raised selling prices for a 15th consecutive month.
Business confidence improved sharply to a three-month high, although some firms remained concerned about the ongoing impact of regional instability.
Kuwait’s outlook remains closely tied to oil exports and shipping conditions, making it more exposed to regional disruption. The World Bank projects a 6.4 percent contraction in real GDP in 2026, before a rebound in 2027, assuming shipping constraints ease.
