Growth in the UAE’s non-oil private sector slowed to a significantly more subdued pace in March, as the war in the Middle East undercut customer demand, snarled supply routes, and pushed input prices higher, according to S&P Global’s latest Purchasing Managers’ Index (PMI) report (pdf). The country’s seasonally adjusted PMI slipped to 52.9, down from 55.0 in February, marking the joint‑weakest reading since June 2021.

The slowdown was expected. A major factor could be the “gradual departure of foreign investors and foreign labor — particularly Europeans, Americans, and workers from other Western countries — from the UAE,” MENA Economist Hamzeh Al Gaaod tells EnterpriseAM. While the reading is still above the 50.0 neutral threshold, the conflict has “accelerated the build‑up of slowing growth momentum during March,” Al Gaaod added.

Where the biggest impact shows: “Anecdotal comments suggested that sectors such as tourism, retail and logistics were the most affected, whereas segments such as technology and construction signalled a softer, but still notable impact,” S&P Global’s Senior Economist David Owen noted in the report.

None of that is surprising. Tourism and retail were among the sectors hit the hardest by the slower footfall — uncharacteristic for this time of year — as many expats flew back home and tourists canceled plans to visit the country as the war dragged on. Logistics has also suffered due to the disruptions to the Strait of Hormuz and the targeting of ports.

Dubai’s upturn also cools: Dubai’s non-oil PMI also fell to its weakest reading in nine months at 53.2 in March, down from 54.6 in February, though it was slightly higher than the general UAE level of growth. Growth in both output and new business softened, with Dubai-based companies expressing their lowest level of confidence in future output since late 2020.

Supply chain snarls are also to blame

Besides the hit to demand, firms reported that the war constrained output, as it disrupted both supply chain routes and end-market demand, though many still noted resilient order books and ongoing project work, which kept the PMI above the expansion threshold.

The suppliers’ delivery times index recorded its largest monthly fall since the series began a decade‑and‑a‑half ago, while vendor performance deteriorated for the first time since September 2021. The disruption of key supply routes, including reported bottlenecks around the Strait of Hormuz, has translated into significantly longer wait times for critical inputs.

Brace for higher prices…

In a bid to protect margins, UAE firms hiked average selling prices at the fastest pace in around 11.5 years, as input price pressures accelerated in March, with the war pushing up costs for logistics, ins., fuel, energy, steel, technology equipment, and machinery. The rate of increase in purchase prices was the fastest since July 2024, prompting many firms to pass on costs.

The outlook is… not so rosy

Firms’ expectations for activity over the next 12 months fell to a 61‑month low amid deep uncertainty over the war’s depth and duration. However, Owen noted that firms “took comfort from strong long-term growth projections, high demand in tech and other sectors, and fiscal spending plans including Abu Dhabi’s Economic Vision 2030.” A sharp increase in backlogs also suggests a sales pipeline exists if new orders taper.

The bottom line: The outlook hinges entirely on regional stability. “The more the war continues, and the closure of the strait persists, the more companies — especially those producing and exporting products — will suffer,” Al Gaaod tells us.

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