The UAE’s non-oil private sector lost momentum in March, with business conditions weakening to their softest level in nearly four years as the Middle East war weighed on demand, strained supply chains, and pushed cost pressures higher. Even though the private sector remained in expansion territory, the latest PMI data showed that the pace of growth slowed meaningfully, while business confidence fell to one of its lowest levels in years.
According to the latest S&P Global survey, the seasonally adjusted UAE Purchasing Managers’ Index dropped to 52.9 in March, down from 55.0 in February. A reading above 50 still signals expansion, but the latest figure marked the joint weakest reading since June 2021, matching the level seen in July 2025. That is an important deterioration, not because the economy has slipped into outright contraction, but because it shows how quickly war-related disruption is feeding into the real business environment.
The story behind the headline number is clear. The war in the Middle East is now affecting the UAE not only through higher energy and logistics risks, but also through weaker customer demand, delayed inputs, rising backlogs, and more visible pressure on costs. For an economy that has worked hard to diversify away from oil and build strength in tourism, trade, logistics, retail, services, construction, and technology, that combination is uncomfortable.
At the same time, the picture is not one of collapse. Many firms still reported resilient order books, and output continued to grow overall. That matters because it suggests the non-oil economy has not lost its underlying base of activity. What has changed is the pace, the quality, and the confidence behind that growth. Businesses are still moving forward, but with more friction, more uncertainty, and much less optimism than before.
A softer expansion, not a contraction, but the slowdown is real
The first thing to understand about the March PMI reading is that it does not describe an economy falling apart. A level of 52.9 still indicates that the non-oil private sector is growing. However, PMI data are often most useful not when they signal a dramatic collapse, but when they reveal a clear loss of momentum before that collapse ever happens.
That is exactly what the UAE data now show. February’s 55.0 reading already suggested a decent pace of growth. A drop to 52.9 in just one month is a meaningful shift. It tells us that business expansion is continuing, but under noticeably more difficult conditions.
This matters because the UAE’s non-oil economy has been one of the country’s key strategic success stories. Policymakers have spent years encouraging private-sector diversification, foreign investment, infrastructure development, trade expansion, and the growth of service-led sectors. A slowdown in that part of the economy draws attention because it touches the very areas the UAE wants to rely on more for long-term resilience.
The fact that the PMI is now at its joint lowest level since June 2021 also gives the slowdown more weight. It suggests this is not just a routine monthly fluctuation. It is a material weakening tied to a broader external shock.
The war is affecting demand, not just sentiment
One of the most important takeaways from the March survey is that the war is no longer just a confidence issue. It is affecting actual business activity.
Sales growth eased in March, though it remained positive overall. That distinction is important. It means customers have not disappeared, but demand has become softer. Businesses are still generating new work, but not with the same strength as before.
That kind of shift is often how a wider slowdown begins. Orders do not instantly collapse. Instead, they become less robust, more uneven, and more exposed to hesitation. Customers may postpone decisions, reduce spending, or become more selective. In a war-driven environment, those behaviors are common, especially in sectors tied to discretionary spending, mobility, or international flows.
David Owen, senior economist at S&P Global Market Intelligence, noted that sectors such as tourism, retail, and logistics appeared to be the most affected. That makes sense. These sectors are naturally more exposed to changes in consumer mood, travel activity, shipping conditions, and regional stability. When conflict dominates headlines and transport routes come under strain, these parts of the economy tend to feel the pressure first.
By contrast, segments such as technology and construction were reported to show a softer, but still noticeable impact. That likely reflects the fact that these sectors may be somewhat more insulated in the short term, either because of project pipelines, longer planning horizons, or more structural demand. But they are not immune. A prolonged conflict can still weaken confidence, disrupt materials supply, and delay investment decisions across almost every part of the economy.
The Strait of Hormuz is a critical part of the problem
A central issue in the March data was the closure of the Strait of Hormuz, which survey respondents linked directly to longer wait times for inputs, rising backlogs, and stronger cost pressures.
This is a major point because it connects the regional conflict to very specific business disruptions. The Strait of Hormuz is not just a geopolitical symbol. It is one of the world’s most important shipping routes for energy and trade. If it becomes constrained or disrupted, the effect is not limited to oil prices. It spreads into freight timing, materials delivery, supply reliability, and overall business planning.
For UAE firms, that matters enormously. The country is a major logistics, transport, trade, and re-export hub. Its non-oil private sector depends on the smooth movement of goods and materials. When firms start reporting longer delivery times and more difficulty obtaining inputs, it signals that the conflict is hitting the practical machinery of the economy.
That was visible in the survey results. Delivery delays worsened, backlogs increased, and purchasing costs climbed. Those are classic signs of supply-chain stress. They also tend to feed on one another. Delays create bottlenecks, bottlenecks increase backlog pressure, and backlog pressure can then push firms to pay more to secure supplies faster or to protect ongoing production schedules.
Input costs are rising fast, and firms are passing them on
Another major feature of the March report was the intensification of cost pressure. Overall purchase prices rose at the fastest pace since July 2024, reflecting the impact of delayed inputs, disrupted supply lines, and higher costs across the operating environment.
That alone would already be concerning for businesses trying to defend margins. But the next step in the chain is just as important: more firms are now passing those higher costs on to customers.
Average selling prices increased in March at the sharpest pace in nearly 11 and a half years. That is a striking figure. It suggests that businesses are no longer able, or willing, to absorb these higher costs quietly. Instead, they are increasingly transferring the burden to end customers in order to protect profitability.
This matters for two reasons. First, it shows that margin pressure has become serious enough to change pricing behavior. Second, it raises the risk that inflationary effects could spread more broadly through the non-oil economy.
For policymakers and businesses alike, this is a delicate issue. Cost inflation in a war-disrupted environment can be hard to control because it does not come from excessive domestic demand alone. It comes from supply friction, transport constraints, input scarcity, and external uncertainty. That means it can appear even while growth is slowing. And that combination is always harder to manage than a normal demand-driven inflation cycle.
Business confidence is weakening even as growth strategies remain in place
One of the most notable parts of the report is that expectations for future activity fell to their lowest level in more than five years. That may be the most important warning signal in the entire survey.
Current output may still be growing, and some order books may still be resilient, but confidence about the future is clearly weakening. That matters because business expectations often influence hiring, investment, inventory management, and expansion plans before actual activity fully turns.
The survey suggests that long-term expansion strategies and government spending are still providing some support to sentiment. That is an important stabilizer. The UAE has spent years building an environment that encourages long-term growth, and public investment still acts as a cushion when external shocks hit.
But some firms are now openly worried about how deep and how lasting the economic fallout from the war could become. That change in mindset is significant. It tells us that businesses are beginning to think beyond short-term disruption and ask whether the conflict could cause a more sustained drag on demand, logistics, pricing, and planning.
That is not yet the same thing as panic. But it is a meaningful deterioration in tone.
Dubai’s data show a similar but slightly sharper warning
The Dubai PMI also weakened in March, falling to 53.2 from 54.6 in February. That still signals expansion, but it marks the weakest improvement in non-oil private-sector conditions in nine months.
Dubai’s reading matters because the emirate sits at the center of many of the sectors most exposed to the current shock. It is a hub for trade, tourism, aviation, retail, hospitality, and logistics. If those parts of the economy are under pressure, Dubai is likely to show it early.
That is exactly what the survey indicates. Output growth and new business both softened. Supply chains came under greater pressure, with non-oil firms reporting the longest delivery delays since July 2022. Cost pressures intensified. And difficulties in securing materials contributed to a record decline in input inventories.
That last point deserves attention. Falling inventories can sometimes reflect efficient stock management, but in this context it signals strain. If firms are struggling to secure materials and inventories are falling to record levels, that suggests supply problems are not just a temporary inconvenience. They are beginning to affect firms’ operating buffers.
Looking ahead, Dubai firms expressed only marginal optimism about output growth over the next 12 months, with business confidence falling to its weakest level since the end of 2020. That is a sharp reminder that confidence has become a more serious issue than the headline output figures alone might suggest.
The UAE economy is proving resilient, but resilience is being tested
Taken together, the UAE and Dubai PMI figures paint a picture of resilience under pressure rather than breakdown. The economy is still expanding. Many firms are still active. Orders have not disappeared. Government support and long-term plans are still helping.
But resilience is now being tested much more visibly.
The war is weighing on demand, disrupting supply chains, raising costs, and damaging confidence. Tourism, retail, and logistics are clearly exposed. Technology and construction are softer but still affected. Delivery delays are worsening. Input inventories are under pressure. Selling prices are rising quickly. And expectations for future growth are weakening.
These are not signs of an economy in crisis today. But they are signs of an economy moving into a more fragile and more inflation-sensitive phase. For a business environment that had previously benefited from momentum, diversification, and confidence, that change matters.
If the regional conflict eases soon, the UAE may be able to absorb much of this stress without deeper damage. But if the disruption to trade routes, energy markets, and customer sentiment lasts longer, the current slowdown could become more entrenched.
Conclusion
The UAE’s non-oil private sector remained in growth territory in March, but the pace of expansion slowed sharply, with the PMI falling to 52.9, its joint weakest level since June 2021. The latest survey shows that the Middle East war is now affecting real business conditions through weaker demand, disrupted supply chains, higher backlogs, and stronger cost pressure.
Sectors such as tourism, retail, and logistics appear to be the most affected, while technology and construction are also feeling a softer but clear impact. The closure of the Strait of Hormuz has lengthened input delivery times and contributed to rising purchase costs, while firms have responded by increasing selling prices at the fastest pace in nearly 11 and a half years.
Dubai’s numbers reinforce the same message, with softer growth, longer delays, falling inventories, and confidence at its lowest level since the end of 2020. The UAE’s non-oil economy is still growing, but it is doing so with more friction, less confidence, and much stronger inflation pressure than before.
The broad takeaway is that the UAE remains resilient, but the war is pushing that resilience much harder than earlier phases of the conflict suggested. If the regional environment stabilizes, growth may regain some momentum. If it does not, the slowdown in March may prove to be only the beginning of a more difficult period for the non-oil private sector.
