UAE's Non-Oil Sector Growth Slows Amid Heavy Rainfall and Flooding in April

The United Arab Emirates' non-oil private sector experienced a slowdown in growth during April 2024, as heavy rainfall and flooding disrupted business operations and impacted sales. The seasonally adjusted S&P Global UAE Purchasing Managers' Index (PMI) fell to 55.3 in April, down from 56.9 in March, marking the lowest reading since August 2023.

Why this matters: The performance of the UAE's non-oil sector has significant implications for the country's economic stability and long-term development, as it accounts for approximately 74% of the country's overall GDP. A slowdown in this sector could have far-reaching consequences for the nation's growth prospects and its ability to diversify its economy away from oil revenues.

Despite the drop, the PMI remained above the neutral 50.0 threshold, indicating an overall expansion in business activity. However, the pace of growth was the weakest since last August. The slowdown was primarily attributed to a sharp deceleration in new business gains, with new orders rising at the slowest rate since February 2023.

David Owen, a senior economist at S&P Global Market Intelligence, commented on the findings, stating, "April data highlighted strong overall growth across the UAE non-oil private sector as buoyant domestic economic conditions helped to support long-term business expansion plans. However, the latest survey signalled a sharp slowdown in new business gains in the wake of heavy rainfall and flooding."

Companies operating in Dubai were particularly affected by the adverse weather conditions, with the S&P Global Dubai PMI falling to 55.1 in April from 58.0 in March, its lowest level in eight months. The April 16 storm caused major disruptions, including flooded roads and buildings, disrupted transport services, and forced business closures.

The flooding led to a significant increase in backlogs of work, as temporary business disruptions and elevated pressure on operating capacity hindered the timely completion of projects. Owen noted, "Backlogs of work increased considerably in April, which was linked to temporary business disruptions and elevated pressure on operating capacity. Non-energy businesses are nonetheless still highly upbeat about their year ahead growth prospects."

Despite the challenges posed by the heavy rainfall and flooding, companies in the UAE's non-oil sector remain optimistic about future growth prospects. Many respondents cite strong sales pipelines and expectations of a swift recovery from the impact of the adverse weather conditions.

Job creation continues to grow in April, albeit at a slower pace compared to previous months. The expansion in employment is driven by new project starts and resilient demand conditions. However, pressure on operating margins persists, with price discounting continuing despite faster rises in purchasing costs and salary payments.

The UAE's plans to diversify its economy away from oil revenues and attract foreign investment are gaining momentum, with the performance of the non-oil private sector remaining vital. The sector accounts for approximately 74% of the country's overall GDP, making its resilience and growth crucial for the nation's economic stability and long-term development.

In response to the impact of the heavy rainfall and flooding, the UAE government has implemented various support measures to assist affected businesses and individuals. These include a six-month repayment deferment for personal and car loans, comprehensive insurance coverage for damage to vehicles and homes, interest-free loans for small businesses, and a Dh2 billion aid package to support Emiratis affected by the storms.

While the April PMI data reflects a slowdown in growth, the UAE non-oil private sector's strong fundamentals, coupled with government support measures, are expected to facilitate a swift recovery and maintain the country's economic growth trajectory in the coming months. The sector's resilience and adaptability will be put to the test during the UAE's response to the challenges posed by the recent adverse weather conditions.

Key Takeaways

• UAE's non-oil sector growth slowed in April 2024 due to heavy rainfall and flooding.
• PMI fell to 55.3, the lowest since August 2023, but still above the 50.0 threshold.
• New business gains slowed, with companies in Dubai particularly affected.
• Despite challenges, companies remain optimistic about future growth prospects.
• Government support measures were implemented to assist affected businesses and individuals.