Businesses in Dubai’s non-oil private sector reported a further improvement in operating conditions in May, with growth softening from April but remaining robust.

Firms showed stronger confidence in the year-ahead, registering the best projection of output in over three years.

Output and employment increased to stronger degrees, whereas demand momentum eased and there was a greater relief of supply chain pressures.

The headline S&P Global Dubai Purchasing Managers’ Index (PMI) is derived from individual diffusion indices which measure changes in output, new orders, employment, suppliers’ delivery times and stocks of purchased goods.

The survey covers the Dubai non-oil private sector economy, with additional sector data published for travel & tourism, wholesale & retail and construction.

After reaching an eight-month high of 56.4 in April, the headline index slipped to 55.3 in May, to signal a sharp overall improvement in business conditions over the month.

Weighing on the index was a softer rise in new business inflows and a greater shortening of delivery times.On the flip side, businesses saw a marked and quicker expansion of activity levels in May. The rate of growth accelerated for the fifth consecutive month and was the strongest since August 2022.

Surveyed firms often related higher activity to another sharp rise in new order intakes, supported by continued marketing efforts and work on ongoing projects. Output increased sharply in each of the three monitored sectors, helped by further rises in client demand.As well as a rapid expansion in activity, firms were confident that growth will be sustained over the forthcoming year. Survey respondents gave the highest degree of optimism since March 2020, just before the initial global COVID-19 lockdown.

David Owen, Senior Economist at S&P Global Market Intelligence, said: “Dubai non-oil economic conditions continued to strengthen at a robust pace in May. The headline index dropped to a three-month low of 55.3, but this was partly due to a relaxation of supply-side pressures, as improving global conditions helped average lead times to fall at the quickest pace since mid-2019. Likewise, while new business growth slowed from April’s eight-month high, it was still sharp overall.”

“Firms notably saw a further acceleration in the rate of activity growth, which picked up for the fifth month in a row in May. With firms seeking to rapidly expand their output, job numbers also rose to a greater extent, with growth quickening to the fastest rate since January 2018.”

Meanwhile, business expectations for the year ahead improved sharply in May, as firms grew more confident that favourable economic conditions will support new business intakes. Perhaps a symbol of the region moving clear of the pandemic era, the degree of business confidence was the strongest recorded since March 2020, immediately before the first global lockdown.”

The latest survey data also signalled an improvement in supply chain conditions across the non-oil economy in May. This allowed vendors to increase their capacity and meet delivery requirements. As a result, average lead times shortened at a rapid pace that was the most marked since August 2019.

The improvement supported another round of stockpiling in May, although the latest expansion in inventories was softer than those recorded in both March and April. Surveyed businesses often mentioned that rising new order intakes meant they needed to replenish their stocks as part of preparations for future projects. Purchasing efforts were somewhat helped by a subdued inflation environment, as input prices picked up only marginally.

The slow uptick in costs encouraged firms to offer additional discounts on their own prices. After falling at the quickest rate for three-and-a-half years in April, output charges continued to fall relatively sharply in May.

Finally, robust growth and an improving outlook meant that the labour market showed notable strength during May. Employment numbers rose for the thirteenth consecutive month, and the pace of job creation was the fastest recorded since the beginning of 2018. Anecdotal evidence showed that companies primarily sought to hire workers into sales and marketing departments in order to take full advantage of the uplift in new business.

The S&P Global Dubai PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 600 private sector companies. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. The sectors covered by the survey include manufacturing, construction, wholesale, retail and services. Data were first collected in January 2010.