UAE non-oil sector enters 2026 with strong momentum despite rising cost pressures

UAE businesses entered 2026 on a solid growth trajectory, building on a strong finish to 2025 as the non-oil private sector continued to expand, supported by record company formations and robust new business inflows.

Data released in January 2026 showed sustained momentum across key industries, with activity levels comfortably in expansion territory and confidence underpinned by favorable market conditions and supportive government policies.

Strong close to 2025

The seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) stood at 54.2 in December 2025, remaining well above the 50.0 threshold that separates growth from contraction. More than one-quarter of surveyed firms reported month-on-month increases in output, marking one of the fastest expansion periods of the year.

Companies attributed the rise in activity primarily to strong new orders from both domestic and international markets. Continued demand in tourism, aviation, and logistics, alongside ongoing business-friendly reforms, played a key role in sustaining growth levels.

Positive outlook for 2026

Looking ahead, the UAE is expected to outperform the global economy in 2026, driven by diversification and expanding trade links. Standard Chartered has upgraded its 2026 GDP growth forecast to 5.0 percent, while the UAE Central Bank projects growth of up to 5.7 percent.

Business formation remains a major growth engine. Around 250,000 new companies entered the UAE market in 2025, bringing the total number of registered businesses to over 1.4 million. Authorities are targeting 2 million companies by the next decade, reinforcing the country’s position as a regional business hub.

Trade activity is also accelerating. Total foreign trade is projected to reach the $1 trillion milestone by late 2026, with the Asia–UAE corridor accounting for roughly one-third of overall trade volumes.

Emerging challenges

Despite the positive outlook, firms reported growing headwinds at the start of 2026. Input costs increased at the fastest pace in 15 months, driven by higher salary expenses, transportation, and maintenance costs.

To protect margins, many businesses adopted leaner inventory strategies, while employment growth slowed to a marginal pace in December. Some companies also flagged intensifying competition and market saturation as potential constraints on future expansion.

Overall, while cost pressures and competitive dynamics pose challenges, the UAE’s non-oil sector enters 2026 with strong underlying fundamentals, supported by diversification, trade growth, and continued investor confidence.