The most recent S&P Global Purchasing Managers’ Index (PMI) shows that the non-oil private sector of the United Arab Emirates experienced a moderate slowdown in growth during March 2025. From 55.0 in February—its lowest level since September—the index dropped to 54.0. Any figure above 50.0 indicates expansion, but the slowing rate suggests a loss of momentum that calls into question the short-term viability of the industry.
Why Is This Happening?
The consistent drop in demand momentum—which has now lasted for three consecutive months—helps to explain the deceleration in growth. Analysts say that changing consumer behaviour, regional geopolitical concerns, and global economic uncertainty have tempered new orders—particularly in key industries such as retail, services, and construction.
Companies reported fewer new projects and decreased customer demand, even while they remained in expansionary mode. Concurrent with this has been limited operational capacity resulting from logistical and hiring difficulties. Labour market restrictions have hampered output, even though businesses are still increasing their input purchases to help clear current backlogs.
Rising prices and cautious consumer spending, mixed with uncertainties about interest rates and inflation, are forcing companies—especially in non-oil sectors, including tourism, manufacturing, and financial services—to adopt a more conservative view of future growth.
Some industries are suffering more than others. Traditionally strong performers in the UAE, such as retail and hospitality, have seen a marked decline in new bookings and spending activity—partly due to fewer inbound visitors and a tightening of household budgets.
Though driven by long-term megaprojects, construction and real estate are experiencing delays in private-sector projects due to low investor confidence and financing restrictions. While they are not growing at the high double-digit rate seen during the post-pandemic recovery, logistics and trade remain steady.
This sectoral inequality highlights the need for focused support and reform plans tailored to the particular challenges of each sector.
What Future Lies In Store?
Though there is a slowdown right now, economists are generally positive. Targeting stimulus initiatives and pro-investment policies designed to diversify the economy outside of hydrocarbons, the UAE government has introduced new free zone incentives, infrastructure improvements, and digital innovation centres that are expected to propel medium-to-long-term expansion.
Furthermore, the UAE’s early embrace of green energy projects and its strategic orientation as a global trade and logistics hub help it attract international talent and foreign direct investment (FDI). Demand should recover, especially in high-growth sectors like fintech, artificial intelligence (AI), healthcare, and real estate, as the world economy stabilises and regional tensions de-escalate.
Still, a major obstacle is employment. Businesses may need to upskill the local labour force and engage in automation and digital transformation to remain competitive, as hiring growth slows down.
Final Take
The March slowdown in the non-oil sector of the United Arab Emirates points to more short-term obstacles than a structural downturn. Although recruitment challenges and declining demand are significant issues, the UAE’s economic foundations are sound.
With global and regional conditions stabilising, proactive legislation, diversification initiatives, and an increasingly innovative corporate environment suggest that the non-oil sector may rebound in the coming months.
Maintaining confidence and flexibility will be crucial for companies navigating the changing economic landscape as the nation continues to focus on a post-oil future.