UAE and Saudi Arabia Non-Oil Sectors Power Through Regional Conflict with Robust Growth

The non-oil private sectors of the UAE and Saudi Arabia maintained their expansion trajectory in September, as the Arab world’s two largest economies shook off the effects of the Iran war.

The seasonally adjusted Riyad Bank purchasing managers’ index rose to 55.3 in September, up from 53.8 in August, remaining well above the neutral 50 mark that separates growth from contraction. This marked the strongest rate of improvement in business activity since February and the sixth consecutive month of better business conditions in Saudi Arabia.

The acceleration was largely driven by a marked rise in new order growth, hitting levels closer to the index’s long-run average. Naif Alghaith, chief economist at Riyad Bank, noted that the expansion was primarily demand-led, with new orders increasing at their fastest pace since February. Domestic consumption, investment activity, government and PIF-related projects continued to drive the wider picture of the Saudi economy, despite foreign customer new orders dropping for seven months running due to regional conflict supply chain disruptions.

Gulf states including the UAE and Saudi Arabia have faced attacks during the war, now in its seventh month. While tourism, retail, aviation, and properties took early hits from attacks on civilian infrastructure and energy installations, Gulf economies have gradually bounced back, even as Iran targets commercial vessels in the Strait of Hormuz and Houthi rebels maintain a maritime blockade on Saudi Arabia's Red Sea ports.

Meanwhile, demand conditions in the UAE non-oil private sector also improved markedly in September. The seasonally adjusted S&P Global UAE Purchasing Managers' Index remained stable at 55.3, identical to August. David Owen, principal economist at S&P Global Market Intelligence, stated that the reading indicates the non-oil economy has moved past the midyear slowdown linked to the Middle East conflict, supported by both local markets and abroad.

However, stronger demand and higher input costs enabled UAE companies to raise selling prices at the fastest pace in more than 15 years. Increased output requirements also encouraged companies to expand purchasing activity and employment, with staffing numbers rising modestly.

In Dubai, non-oil private sector business activity also maintained a sharp growth trajectory, with the Dubai PMI posting 54.5 in September, up from 54.1 in August. The boost was largely driven by a sharp and accelerated increase in output, alongside a rise in new orders and foreign business, though output price inflation quickened to the fastest rate since January 2014.