UAE's Non-OilBusiness Sector GrowthSlows Amid Record Rainfall

The United Arab Emirates' non-oil business sector experienced a significant slowdown in growth during April 2024, with the worst storms in 75 years battering the Gulf nation. The S&P Global UAE Purchasing Managers' Index (PMI) fell to 55.3 in April, down from 56.9 in March, marking the lowest reading in eight months. Although the index remained above the 50-point threshold that separates growth from contraction, the pace of expansion was the weakest since August 2023.

Why this matters: The slowdown in the UAE's non-oil business sector has significant implications for the country's economic diversification efforts and its ability to attract foreign investment. The slowdown in the UAE's non-oil business sector has significant implications for the country's economic diversification efforts and its ability to attract foreign investment. The region's leading business and tourism hub, the UAE's economic resilience in the face of extreme weather events will be closely watched by investors and policymakers alike.

On April 16, the UAE witnessed record rainfall, with heavy rain, thunder, and lightning striking Abu Dhabi and Dubai. The severe weather conditions caused widespread disruption, flooding streets and basement parking areas, stalling transport operations, and forcing businesses and logistical services to shut down. Dubai International Airport was also flooded, resulting in flight cancellations and further disruptions to the economy.

The impact of the storms was particularly acute for small and medium-sized businesses, many of which were forced to close their doors and assess the damage. Raw Coffee Company, based in Dubai's Al Quoz area, reported that a quarter of its building was submerged in 200mm of water, leading to a massive clean-up effort and the loss of two parked delivery vehicles and three-quarters of its outdoor furniture. Similarly, Off The Hook, a seafood restaurant chain, recorded a more than 60% drop in its average daily sales from April 16 to 18.

Major supermarket chains, including Choithrams, Carrefour, and Spinneys, were also affected by the storms, with some stores forced to shut down and suspend delivery services to ensure employee safety. However, the disruption led to an increase in demand for online orders, with Carrefour witnessing a significant surge in digital sales. Consumer electronics, particularly televisions and home appliances, also saw a rise in sales as many residents sought replacements for damaged belongings.

As businesses and consumers adapt to the aftermath of the storms, a shift in spending priorities is expected. Roshni Sheth, Middle East retail lead at GfK, noted, "Concern for safety and property may prompt a shift in spending priorities towards vital items and home repair services, additionally, the event may fuel interest in insurance coverage as consumers seek to protect themselves against future weather-related risks."

Despite the slowdown, non-energy businesses remained optimistic about their growth prospects for the coming year. Tim Moore, economics director at S&P Global Market Intelligence, commented, "Non-energy businesses are nonetheless still highly upbeat about their year-ahead growth prospects. Many commented on strong sales pipelines and a swift recovery from the impact of heavy rainfall." However, the degree of optimism eased, slipping to its lowest reading since January.

The UAE's non-oil sector, which accounts for approximately 74% of the country's overall GDP, has been a key focus in the Gulf state's accelerating efforts to diversify its economy away from hydrocarbons and attract foreign investment. While the storms have undoubtedly had a short-term impact on the sector's growth, the long-term outlook remains positive, with businesses and consumers demonstrating resilience and adaptability in the face of adversity.

The UAE's ability to bounce back and maintain its position as a leading business and tourism hub in the Middle East will be closely watched, given the challenges posed by the record rainfall and its aftermath. The lessons learned from this experience may also serve to strengthen the nation's preparedness for future weather-related disruptions and ensure thesustained growthof its non-oil economy.

Key Takeaways

• UAE's non-oil business sector growth slows down in April 2024 due to severe weather.
• S&P Global UAE PMI falls to 55.3, lowest reading in 8 months.
• Small and medium-sized businesses heavily impacted, with many forced to close.
• Online orders and sales of consumer electronics surge due to storm-related demand.
• Businesses remain optimistic about growth prospects despite short-term slowdown.