Live updates: Follow the latest news on the Iran war
The UAE's non-oil private sector continued to grow in March despite a substantial hit from the continuing Iran war, underlining the resilience of the Arab world's second-largest economy.
Customer demand waned, output and new business growth slowed and selling charges rose to their highest level since June 21, amid supply chain disruption due to the closure of the Strait of Hormuz. However, overall sales growth in the Emirates remained positive.
The seasonally adjusted S&P Global UAE Purchasing Managers' Index dropped to 52.9 in March, from 55 in February. A reading above 50 indicates economic expansion.
Although private sector non-oil business activity moderated last month, “for many firms, orders books were resilient and output expanded,” said David Owen, senior economist at S&P Global Market Intelligence.
“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.”
The Iran war has tipped the Middle East into its worst geopolitical crisis, while sparking a global energy crisis and severely disrupting businesses.
The conflict that began on February 28 with US and Israel's co-ordinated bombing campaign in Iran has spiralled into a broader regional war. Iran has launched waves of missiles and drones on Gulf nations, claiming it is aiming at US interests.
The UAE has borne the brunt of Tehran's strikes on its neighbours. Air defences in the Emirates have engaged 457 ballistic missiles, 19 cruise missiles and 2,038 drones since the start of Iranian attacks last month, the latest data from Defence Ministry shows.
Iran has also blockaded the Strait of Hormuz, the narrow waterway through which a fifth of global crude supplies pass through. The effective closure of the passage has also severely disrupted businesses across the Gulf region.
While output growth in the Emirates slowed in March, with selling charges rising due to supply disruption, businesses reported moderate growth in sales. Project work also remained uninterrupted although costs of freight rose.
International orders also climbed last month but the rate of expansion remained modest, according to the PMI survey.
Input costs
Businesses also struggled to secure some inputs leading to a larger backlog and firms recruiting additional staff in an effort to deal with the situation. Job creation, however, softened during the month amid rising costs.
Input cost pressures also accelerated in March as the war in the Middle East led to strong increases for inputs in sectors including logistics, insurance, fuel, energy, steel, technology equipment and machinery.
The rate at which overall purchase prices rose was the sharpest recorded since July 2024.
“Although surveyed businesses displayed high levels of uncertainty, with activity expectations at a 61-month low, they 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,” Mr Owen said.
“Another sharp increase in backlogs of work also suggests that firms should have strong sales pipelines to fall back on should new orders begin to taper.”
Dubai support package
In Dubai, non-oil private sector confidence declined in March, but output growth remained strong overall, according to the report.
This week, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, Deputy Prime Minister and Minister of Defence, approved a Dh1 billion ($272.2 million) package for the business community, with emphasis on supporting the emirate’s tourism and hospitality sector.
Last month, S&P Global Ratings affirmed the UAE's credit rating, saying the country's economy has “substantial” fiscal buffers to handle the impact of the Iran war.
The Central Bank of the UAE has approved a resilience package to reinforce the stability of the banking sector against the backdrop of the war in the Middle East.
The package allows lenders to access liquidity and provides them the flexibility to use capital buffers to support the UAE economy.
