The UAE’s non-oil sector has kicked off the year with robust growth and a sharp rise in business activity, but capacity pressures are posing a significant challenge, according to a new business survey.

The S&P Global UAE Purchasing Managers’ Index (PMI) registered 55.0 in January, slightly below December’s nine-month high of 55.4. This marginal dip reflects capacity constraints, which remain a key issue for the sector.

Despite soaring demand and favorable market conditions, which led to a surge in new orders, inventories rose only fractionally. 

The survey indicates that companies are struggling to manage backlogs due to the high demand and administrative delays, including slow client payments. Concerns about competitive pressures have also dampened business optimism, which has fallen to its lowest level in over two years.

While new export orders nearly stalled, strong domestic demand drove a sharp rise in sales volumes. Easing cost pressures provided some relief, with input costs rising at the slowest pace in 13 months. This allowed non-oil businesses to increase their selling prices for the first time in four months.

David Owen, Senior Economist at S&P Global Market Intelligence, noted that the UAE economy is in a healthy position, citing robust expansions in activity and new business alongside lower input cost inflation. 

However, he acknowledged the surprising decline in business confidence, which has reached its lowest point since December 2022. “Strong competition and cash flow concerns arising from heavy backlogs have appeared to sow doubt among firms that they can continue to boost their revenues,” Owen explained.

Employment numbers saw a marginal increase, the fastest since August 2024, but Owen pointed out that “a persistently low rate of employment growth suggests that firms are lacking the ability to hire in order to tackle backlog issues.”