Private sector activity fell from a record peak last month as new orders and output slowed.
Business orders and output ease in Emirates
Business activity eased last month from a peak in April as new orders and output slowed, according to the latest purchasing managers survey results.
Job creation also slowed during the month, the UAE HSBC Purchasing Managers Index (PMI) showed.
"There is still a raft of problems for the UAE economy to work through, and the lower PMI print for May is a reality check for those that thought we were rushing back to the strong growth rates of earlier years," said Simon Williams, HSBC's chief economist for the Middle East and North Africa.
"But it is still a decent reading - the good score for new orders is particularly encouraging - and it adds to my conviction that the UAE's recovery is well under way," Mr Williams said.
The HSBC index dropped to 56 points last month, down from a peak of 57.5 points in April.
A reading above 50 indicates growth in activity. The PMI surveys 400 non-oil private-sector firms to gauge the performance of the manufacturing and services sectors.
Growth in the economy is expected to pick up this year, helped by higher oil prices and increased private-sector activity.
"We continue to look for non-oil growth of about 3 per cent this year, with the economies of both Dubai and Abu Dhabi expanding year on year," said Mr Williams.
New orders by companies dipped slightly last month but still grew at the second-fastest rate in the survey's history. Companies cited favourable business conditions and competitive pricing as the main reasons for higher demand. Foreign demand for goods and services rose last month, supporting a record rise in new export business. Survey contributors said strong business conditions, competitive prices and marketing were the reasons for the increase in new export orders.
Businesses also built up input stocks and hired additional staff during the month, the survey showed. Purchasing increased at a record pace, helping to sustain a surge in inventories.
Purchase price inflation moderated, but 26 per cent of those surveyed reported a rise in purchasing costs. Higher costs for fuel, raw materials and freight drove the latest increases, companies said.
Annual consumer price inflation decelerated to 1.1 per cent in April as weakness in the housing market helped to keep overall consumer costs under control.
Business activity in Saudi Arabia rose at its slowest pace in five months in May, according to the PMI results in Saudi Arabia. The SABB HSBC Saudi Arabia Purchasing Managers Index slipped to 62.6 last month from 62.7 in April. Job creation expanded at its fastest pace since November, the survey showed.