The UAE's non-oil private sector delivered its strongest performance in eight months during August, according to the latest S&P Global UAE Purchasing Managers' Index (PMI). The reading provides fresh evidence of resilience in the UAE's non-oil economy, although lingering regional uncertainty continues to weigh on hiring and longer-term capacity decisions, a signal worth watching for investors tracking UAE equities and ETFs.
Headline Numbers
The seasonally adjusted UAE PMI climbed to 55.3 in August, up from 52.7 in July, marking a second consecutive month of accelerating growth and the best reading since December 2024. Any figure above 50 signals expansion, so a print above 55 represents a notably strong pace of improvement in operating conditions.
What's Driving UAE Non-Oil Sector Growth?
UAE New Orders and Export Demand Accelerate
New business inflows rose sharply, matching the joint-quickest pace in more than two years, as customer activity improved and caution tied to the Middle East conflict continued to ease. Export demand also grew for a second straight month, reaching its highest pace in 21 months after contracting through the second quarter.
UAE Output Growth Strengthens
Output expanded at a six-month high, with firms citing higher order volumes, ongoing project progress and client digital-migration work. The mix of drivers suggests the growth story isn't purely construction or real estate driven.
Rising Backlogs Highlight Capacity Constraints
Backlogs of work built up at the fastest pace this year as new orders outpaced firms ability to scale capacity. This is an important tension to watch: demand is clearly running ahead of firms' willingness or ability to add capacity, a dynamic that is also reflected in the employment data.
UAE Business Expectations Improve
Business expectations for the coming year improved to their highest level since April, with firms citing improving sales trends, construction project activity and hopes for an easing of regional tensions. The improvement suggests optimism is broadening even as businesses remain cautious about hiring.
UAE Firms Increase Reliance on Local Suppliers
One of the more interesting developments in the August data was the increased reliance on local suppliers. UAE-wide, firms increased inventories at their fastest pace in nearly three years, the strongest since November 2023, as businesses built up stock and leaned more heavily on local suppliers to reduce exposure to geopolitical disruption. (Dubai's own input-stock build was even sharper, at its fastest pace since December 2017; see the Dubai section below.) Vendor performance also improved for a third consecutive month, aided by greater trade flows and faster deliveries from nearby suppliers, further evidence that the supply-chain improvement wasn't just about stockpiling. Greater use of local suppliers coincided with improved delivery times and an easing in input-cost inflation to a six-month low, even as firms continued to report higher costs for energy, fuel, cement, steel and chemicals.
UAE Employment Growth Lags Behind Demand
Despite the strong headline, hiring tells a more cautious story. UAE employment fell for the second time in three months, as firms hesitated to commit to longer-term capacity expansion given lingering regional uncertainty. This divergence between strong demand/output and soft hiring is worth monitoring. It suggests businesses are meeting stronger demand without committing aggressively to additional headcount, which could eventually constrain output if backlogs continue to build.
UAE Selling Prices Rise as Input Costs Ease
Even as input costs eased, UAE non-oil businesses were able to raise the prices they charge customers; average selling prices rose modestly in August, marking the quickest increase in four months. Some firms cited stronger demand and higher costs as the reason for raising prices, while others continued offering promotions amid strong competition, suggesting pricing power varies by sector and remains far from uniform.
UAE Economic Growth Outlook Remains Resilient
The UAE central bank estimates real GDP growth of 5.6% for both 2025 and 2026, supported by hydrocarbon and non-hydrocarbon activity. The IMF has similarly characterized the UAE economy as resilient through the regional conflict, projecting a growth rebound in 2027 as hydrocarbon output rises and tourism/trade normalize.
What the UAE PMI Means for ETF Investors
The stronger UAE economic backdrop has not translated into uniform ETF performance. UAE-focused funds have delivered mixed returns in 2026, reflecting differences in index composition and investment strategy. The latest fund data show the following:
Lunate figures are as of September 3, 2026. iShares figures are from the cumulative return table in the fund's latest available performance data, as of June 30, 2026.
Among the three Lunate funds shown, CHAE has been the strongest performer, gaining 8.01% over three months and 2.91% YTD. By contrast, CHAESHIN has declined 7.17% YTD and 9.96% over one year. The iShares MSCI UAE ETF recorded a 2.74% YTD total return and a 6.61% one-year total return in its June 30 cumulative-performance data.
This divergence highlights that UAE economic strength does not translate uniformly across ETF strategies, with index composition and Shariah screening playing an important role in returns.
Bottom Line
August's PMI data show the UAE's non-oil economy moving into a higher gear, with growth accelerating across new business, output and exports while input-cost pressures eased. For investors, the stronger operating backdrop provides a constructive fundamental signal for UAE equities and ETFs, although market performance will also depend on earnings, valuations, oil prices and regional risk sentiment. ETF returns remain mixed across strategies, underscoring that stronger economic activity does not necessarily translate into uniform gains across UAE-focused funds. Continued hiring weakness and geopolitical uncertainty remain key risks to watch.
