The UAE’s non-oil private sector ended 2025 with robust activity growth, even as companies sought to safeguard profit margins by reducing inventories and restraining hiring.

According to the latest S&P Global UAE Purchasing Managers’ Index, the sector maintained a solid expansion in December, supported by steady demand, improving market conditions, and favourable domestic policies.

The headline PMI dipped slightly to 54.2 in December from 54.8 in November but stayed well above the 50 threshold that separates growth from contraction, remaining close to its long-term average.

Activity remained strong as the year ended, with over a quarter of surveyed companies reporting higher output in December, marking one of the fastest growth periods of 2025, Gulf News reports.

Firms attributed the expansion to stronger new orders, rising customer numbers, tourism-driven demand, and improved international business flows.

However, the growth came with mounting pressures. Input costs climbed at the fastest pace in 15 months, fuelled by higher wages as well as rising transport and maintenance expenses.

Although many companies passed some of these costs onto customers, selling price increases were modest, putting additional pressure on profit margins.

Inventory management emerged as a major challenge. Even with higher purchasing activity, companies continued to reduce stock levels, with inventories declining at one of the sharpest rates on record. Firms pointed to caution in holding excess stock and a preference for using newly received inputs to fulfil existing orders.

Furthermore, employment growth weakened further in December, with firms increasing staff only modestly. Alongside stronger demand and administrative delays, the slower hiring contributed to a sharper rise in work backlogs, the largest seen in 10 months.

Senior Economist at S&P Global Market Intelligence, David Owen, noted that the year closed on a strong footing, but underlying pressures were becoming increasingly evident.

“The UAE non-oil sector concluded 2025 with a solid upturn, marking a year of robust but somewhat tempered growth in business conditions. 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 said.

He went on to add that companies were buoyed by increasing customer spending, stronger tourism activity, wider adoption of technology, 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.

Moreover, Dubai’s non-oil economy ended the year on a strong note. The emirate’s headline PMI stood at 54.3 in December, just below the 54.5 recorded in October and November, signalling continued robust improvement in operating conditions. Output expanded at its fastest rate since March 2024, supported by a notable rise in new business, even as the pace of sales growth eased slightly from the prior month.