The latest Purchasing Managers' Index (PMI) data paints a diverging picture of the Gulf's non-oil economy. Saudi Arabia ended the second quarter with its strongest business conditions since February, supported by resilient domestic demand and improving business confidence. Meanwhile, the UAE lost momentum, while Qatar and Kuwait remained below the 50-point expansion threshold despite mixed signs of stabilization.
For investors, the story extends beyond a single PMI reading. As Saudi Arabia accounts for the largest share of most GCC equity benchmarks, its economic resilience has an outsized influence on regional markets and GCC-focused ETFs. The widening gap between the Kingdom and its Gulf peers could therefore shape investment sentiment and portfolio positioning heading into the second half of 2026.
Drivers of Saudi Arabia's Non-Oil Economic Growth in June
The seasonally adjusted Riyadh Bank Saudi Arabia PMI, compiled by S&P Global, rose to 53.3 in June from 52.8 in May, marking a four-month high and the fastest pace of non-oil expansion since February. Around 18% of surveyed firms reported higher output, compared with just 2% reporting declines, driven by project approvals, stronger domestic demand, and the resumption of previously delayed sales activity. Continued public and private investment, including projects linked to Saudi Arabia's Vision 2030 agenda, continued to underpin domestic demand.
Although June recorded the strongest PMI reading in four months, the index remained below its long-run average, suggesting growth has strengthened but has yet to return to its historical pace. New business expanded at its fastest rate since February, while the Future Output Index climbed to its highest level since January, reflecting stronger business confidence as regional tensions eased.
Operational conditions also improved. Supplier delivery times recovered at their fastest pace since February as firms relied more on local sourcing and alternative shipping routes, while backlogs of work declined for the first time in a year. Despite stronger activity, employment remained broadly unchanged, and purchasing activity stayed subdued, indicating firms continued to manage costs cautiously rather than expand capacity.
The main area of weakness remained exports, with overseas orders contracting for a fourth consecutive month due to regional logistics disruptions and intensifying foreign competition. Meanwhile, inflationary pressures remained elevated, with Q2 recording the steepest quarter of input cost inflation in 15 years. Higher fuel, freight, supplier, and wage costs prompted 22% of surveyed firms to raise selling prices, the second-fastest pace of price increases in nearly six years.
Momentum Slows Across Other GCC Economies
June's regional PMI round shows Saudi Arabia was the outlier to the upside. Every other tracked GCC non-oil economy either decelerated or stayed in contraction:
The UAE's headline PMI eased to 50.8, still above the 50 no-change mark but its weakest reading in more than five years, according to S&P Global. Dubai's sub-index softened to 50.7 from 52.0. Employment in the UAE non-oil sector actually contracted for the first time in over four years, as firms adjusted staffing in response to softer demand, delayed client spending, and reduced travel activity linked to regional tensions. Supply-chain conditions did improve, however, with delivery times recovering at their fastest pace in four months as shipping through the Strait of Hormuz normalized.
Qatar's non-energy PMI improved to a four-month high of 47.6 but remained below the 50 threshold, marking a seventh straight month of contraction in new business, even as the pace of decline slowed. Kuwait's PMI slipped further to 46.4, its fourth consecutive sub-50 reading, with firms citing a smaller customer base and buyer caution around rising prices.
Notably, S&P Global flagged that the June survey window (June 11–23) closed just after the June 17 US-Iran ceasefire was signed, meaning the full stabilizing effect of the truce may not be visible in the data until July's release.
PMI Divergence Is Reshaping the GCC Investment Landscape
The divergence reinforces a theme that has been building since the conflict began in late February: supported by elevated oil prices, Saudi Arabia's larger and more diversified economy has continued to benefit from resilient domestic consumption, sustained government spending, public employment, and ongoing investment projects.
Key Takeaways from the Next PMI Release
With the survey window closing just before the ceasefire and negotiations toward a permanent peace deal ongoing, July's PMI round (due early August) will be the first to fully capture post-truce sentiment across the bloc, including whether the Strait of Hormuz reopening translates into a genuine export recovery for Saudi Arabia and a broader rebound for Qatar and Kuwait.
Bottom line
June's PMI data reinforces that Saudi Arabia remains the strongest performer among the Gulf's major non-oil economies. While resilient domestic demand, improving business confidence, and ongoing investment activity continue to support expansion, export weakness and elevated cost pressures highlight that risks have not disappeared.
Elsewhere in the GCC, softer momentum in the UAE and continued contraction in Qatar and Kuwait suggest the region is becoming increasingly uneven. For investors, this divergence matters because Saudi Arabia's dominant weight in regional equity indices means its economic trajectory is likely to have a greater influence on GCC-focused portfolios than that of its smaller peers.
The July PMI releases will be closely watched for evidence that easing geopolitical tensions, improving supply-chain conditions, and recovering trade flows translate into broader regional growth. Until then, Saudi Arabia continues to provide the clearest signal of resilience within the GCC's non-oil economy.
