The UAE’s non-oil sector showed signs of a mild slowdown in March 2025, as indicated by a decrease in the S&P Global Purchasing Managers’ Index (PMI), which dropped to 54 from 55 in February. Despite this decline, the PMI remains above the crucial 50-mark that separates growth from contraction, suggesting some resilience in the sector.

Business conditions improved overall, with input purchases rising at the sharpest rate since mid-2019. However, this growth was noted to be the weakest since September of the previous year. The latest survey revealed that non-oil firms were increasingly focused on protecting profit margins, leading to a second-fastest rise in selling charges over the past seven years, even as input cost pressures eased.

Sales volumes across the non-oil economy contributed to a positive shift in operating conditions. Nonetheless, firms faced strong competition, leading to only a mild increase in new export orders. The PMI data indicated that the rise in sales in March was the weakest since October 2024. Although demand growth slowed, UAE businesses reported a significant rise in work backlogs.

David Owen, Senior Economist at S&P Global Market, commented that the third consecutive month of softening new order growth indicates that some firms are struggling to meet sales targets. He noted that to address capacity challenges, firms increased purchasing of inputs in bulk to manage their backlogs. Owen also highlighted ongoing issues with delayed customer payments, which the UAE aims to tackle through a new mandatory e-invoicing system.

Some survey participants reported an increase in material costs linked to stronger input demand, while others noted a decrease in transport prices. Despite these fluctuations, salary costs continued to rise due to ongoing cost-of-living pressures. Prices charged by non-oil firms experienced a third consecutive month of increases, with inflation reaching a historically high pace not seen in over seven years.

Moreover, hiring in March marked the slowest growth in nearly three years, raising concerns for firms given the elevated demand levels. This suggests challenges in finding suitable candidates in the current labor market.

In Dubai, the non-oil sector’s business conditions also softened, with the headline PMI dropping to 53.2 in March from 54.3 in February, marking a five-month low. Companies in Dubai reduced hiring as the expansion rate of new orders declined compared to earlier in the year. Input price inflation fell to its lowest level in a year, while output prices increased at a faster rate than in February.