The UAE's non-oil sector has seen a strong start to the year, marked by significant growth and a surge in business activity. However, capacity constraints remained a key challenge, according to a business survey.

The seasonally adjusted S&P Global UAE PMI recorded 55.0 in January, slightly below December's nine-month high of 55.4, primarily due to ongoing capacity issues.

While favourable market conditions and easing cost pressures drove a spike in new orders, inventory levels saw only a slight increase despite robust purchasing activity, Zawya reports.

The survey highlighted that businesses were “struggling to contain backlog volumes amid soaring demand and administrative delays”, which were largely caused by slow client payments.

Competitive pressures dampened business confidence, with sentiment dropping to its lowest point in over two years.

Despite this, strong market conditions and a growing customer base fuelled a sustained surge in sales volumes, primarily driven by domestic demand, as growth in new export orders nearly came to a halt.

Non-oil businesses benefited from positive price pressures, as the average cost burden grew at its slowest pace in 13 months, despite rising transport and machinery expenses and faster salary increases.

The easing inflation allowed firms to boost input purchases at the start of the year. In response, non-oil companies raised their selling prices in January, the first such increase in four months.

David Owen, Senior Economist at S&P Global Market Intelligence, noted that strong growth in activity and new business, combined with reduced input cost inflation, indicates a healthy outlook for the UAE economy.

“The broad decline in business confidence over the past few months will therefore be a surprise to some. Notably, total confidence was at its lowest level 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, underlining efforts to reduce the gap between output and input prices,” he stated.

Furthermore, business conditions in Dubai's non-oil private sector saw significant improvement in January, slightly outperforming the overall UAE figure.

The headline PMI stood at 55.3, just slightly down from December's nine-month high of 55.5.

Total activity grew due to an influx of new business, with survey respondents pointing to favourable market conditions. Cost pressures also softened, as the rate of input price inflation decreased to a three-month low.