UAE growth cools as trade routes tighten

War-linked disruption to shipping and tourism sharply slowed the UAE’s non-oil private sector in April, pushing business conditions to their weakest level since February 2021 and exposing the economy’s sensitivity to transport bottlenecks across the Gulf.

The seasonally adjusted UAE Purchasing Managers’ Index fell to 52.1 in April from 52.9 in March, staying above the 50 mark that separates expansion from contraction but signalling a clear loss of momentum. The reading marked a second consecutive monthly decline and showed that growth remained positive largely because existing projects, infrastructure work and domestic demand continued to support activity.

New orders, a key gauge of sales pipelines, grew at their slowest pace in more than five years. The new business index slipped to 52.5 from 54.5, reflecting weaker client spending, softer tourism flows and delays linked to transport restrictions. Export demand took the hardest hit. Excluding the pandemic shock of 2020, the fall in foreign sales was the steepest recorded since the survey began in August 2009.

Shipping disruption has become the most immediate pressure point for the UAE’s private sector. Restrictions around key shipment routes, including the Strait of Hormuz, have affected delivery schedules, freight pricing and customer confidence. Companies reported that overseas clients delayed purchases or cut orders as uncertainty over cargo movement and tourism demand weighed on spending decisions.

The squeeze also fed directly into inflation. Input cost inflation rose at the sharpest pace since July 2024, with oil, transport and materials cited as the main drivers. Companies responded by lifting selling prices at the fastest rate since June 2011, an unusually strong pass-through in a market where firms often absorb part of the cost burden to protect demand.

That pricing shift raises a risk for the wider economy. Higher charges may help preserve margins in the short term, but they could also dampen household and business spending if customers become more cautious. The impact is especially relevant for sectors tied to discretionary demand, travel, logistics, construction supply chains and consumer-facing services.

Dubai showed a sharper slowdown than the national index. Its PMI dropped to 51.6 in April from 53.2 in March, a 55-month low and the weakest reading since September 2021. Output and new business growth both softened as conflict-related uncertainty deterred spending and restricted supply lines. Dubai firms still reported an improvement in business conditions, but the pace was modest by the standards of the past three years.

Despite the weaker sales picture, output across the UAE continued to rise at a solid pace. Many companies were able to maintain activity by working through existing contracts, advancing construction schedules and relying on previously secured orders. This helped prevent the slowdown in new demand from translating into a broader downturn.

Businesses nevertheless became more cautious in their operations. Purchasing growth remained mild as companies limited inventory accumulation in the face of higher costs and uncertain sales. Hiring also slowed, with workforce numbers rising at the weakest pace of 2026 so far. Salary inflation eased to a 33-month low, while some firms froze pay or reduced staffing expenses to protect margins.

The labour-market signal is important because the UAE’s non-oil expansion over the past few years has been supported by strong hiring, population growth, tourism recovery, real estate activity and investment in services. A moderation in recruitment does not yet point to a contraction, but it shows that companies are becoming more selective as cost and demand pressures build.

Tourism is another vulnerable channel. The UAE has benefited from sustained visitor flows, hotel expansion, aviation growth and consumer spending linked to travel. Any prolonged deterioration in regional security perceptions could weigh on bookings, events, retail activity and hospitality demand, particularly in Dubai, where tourism and trade remain central to the non-oil growth model.

The data also underline the uneven nature of the slowdown. Domestic infrastructure and construction-linked activity continue to provide a cushion, and companies remain more confident than the headline figures suggest. Business expectations for the coming 12 months rose to a three-month high, supported by sales pipelines, technology investment, artificial intelligence adoption and expectations that demand will recover once supply routes stabilise.