The UAE’s non-oil private sector has experienced significant strengthening in business conditions throughout March, as indicated by the latest S&P Global PMI survey. This period witnessed a sharp increase in new order inflows, propelling a sustained rise in output levels. However, this growth has been accompanied by intense pressure on business workloads, fueled by administrative delays and heightened supply constraints caused by the Red Sea shipping crisis. As a result, businesses in the UAE are facing one of the sharpest accumulations of backlogs of work in the survey’s nearly 15-year history, matching the record set in June 2018.
In parallel, business optimism in the UAE has risen to its highest point in six months, with firms experiencing a softer rise in expenses. However, the increase in competition has led to the most substantial drop in output prices seen in three and a half years.
The S&P Global UAE Purchasing Managers’ Index (PMI) for March registered at 56.9, slightly down from 57.1 in February, but still robustly above the 50.0 no-change threshold. This signals a continued strong improvement in the non-oil operating conditions.
Key to the sector’s growth has been strong demand, as evidenced by another sharp increase in new order volumes. Companies attributed the rise in client spending and marketing initiatives to the uptick in order inflows. Export sales have also grown, albeit modestly.
Consequently, non-oil businesses have significantly boosted their output levels, with nearly 31% of respondents reporting growth during the survey period. High new orders, ongoing projects, and promotional activities were the primary drivers of this expansion.
Despite increasing output, companies frequently struggled to finalize new work, leading to record-high backlogs. Factors contributing to these backlogs include rising client demand placing strain on administration teams and disruptions caused by the Red Sea shipping crisis. These issues have compounded, impacting delivery times and overall business capacity.
David Owen, Senior Economist at S&P Global Market Intelligence, remarked on the health of the UAE non-oil private sector, noting its robust growth. However, he also highlighted the escalating backlogs of work as a critical concern, exacerbated by supply and administrative challenges and the shipping crisis. Owen stated that resolving these issues would be crucial to sustaining business growth.
In March, inventory growth and purchasing slowed, with many firms reportedly having adequate inputs for new orders. Input costs saw a modest increase, the softest in 2024 so far, leading to a significant reduction in selling prices due to competition and the necessity to retain customers.
Looking forward, optimism towards future business activity rose to its second-highest level in four years, bolstered by strong demand, high profits, and marketing strategies. Concurrently, employment numbers have also risen, maintaining a pace above the series trend for two consecutive months. This growth trajectory in the UAE’s non-oil private sector, while facing challenges, indicates a resilient and adaptive business environment, poised for continued expansion once current hurdles are overcome.
