UAE businesses end 2025 strong but rising costs cloud outlook for 2026

Dubai: The UAE’s non-oil private sector closed 2025 with a solid expansion in activity, even as firms moved to protect margins by trimming inventories and limiting hiring. The latest S&P Global UAE Purchasing Managers’ Index shows the non-oil private sector continued to expand at a solid pace in December, supported by steady demand, improving market conditions and supportive domestic policies. The headline Purchasing Managers’ Index eased to 54.2 from 54.8 in November, but remained firmly above the 50 mark that separates growth from contraction and closely in line with its long-run average.

Activity levels remained robust as the year drew to a close. More than a quarter of surveyed companies reported higher output in December, making it one of the fastest growth periods recorded in 2025. Firms linked the expansion to stronger new orders, rising customer numbers, tourism-driven demand and improved international business flows.

However, that momentum came with growing strain. Input costs rose at the sharpest pace in 15 months, driven by higher salary expenses alongside increases in transport and maintenance costs. While many firms passed on some of these increases, selling price rises remained modest, squeezing margins further.

Inventory management became a key pressure point. Despite an increase in purchasing activity, companies continued to run down stock levels, with inventories falling at one of the steepest rates on record. Businesses cited caution around holding excess stock and a preference for using newly delivered inputs to meet existing orders.

Employment growth softened further in December, with firms adding staff at only a marginal pace. Combined with stronger demand and administrative delays, the slower hiring rate led to a sharper build-up in backlogs of work, the most pronounced in ten months.

David Owen, Senior Economist at S&P Global Market Intelligence, said the year ended on a firm note, but with clear signs of strain beneath the surface.

“The UAE non-oil sector concluded 2025 with a solid upturn, marking a year of robust but somewhat tempered growth in business conditions,” he said. “The PMI averaged 54.0 over the year, which was close to its long-run average, but still signalled the weakest annual performance since 2021.”

He added that businesses drew encouragement from rising customer spending, tourism activity, greater technology adoption and supportive government policies. “However, December was also characterised by an acceleration of cost pressures and leaner inventory strategies, indicating that many firms were feeling the pinch on their balance sheets,” Owen said.

Within the UAE, Dubai’s non-oil economy closed the year on a solid footing. The emirate’s headline PMI came in at 54.3 in December, only slightly below the 54.5 readings seen in October and November, indicating another strong improvement in operating conditions. Output growth in Dubai was the sharpest since March 2024, driven by a marked uplift in new business, even though the pace of sales growth eased a little from the previous month.

Dubai firms managed to ramp up activity despite only a slight increase in employment and a further fall in input stocks, with the survey pointing to the steepest reduction in inventories since April 2020. Input price pressures in the emirate rose to their highest level in a year, prompting a quicker, though still modest, increase in output prices as companies reacted to higher cost burdens.

Looking into 2026, overall business expectations across the UAE non-oil sector remain positive but have softened and are now among the lowest seen in three years. Survey respondents expressed optimism around demand and investment trends but warned that market saturation and stiff competition could cap growth, reinforcing the need for productivity gains, targeted expansion and disciplined cost control as the next phase of the cycle begins.