UAE Non-Oil Business Sector Growth Slows Due to Red Sea Shipping Crisis

Business View
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According to a survey shared on Wednesday, March 3, 2024, which shows a reduction in the growth of the non-oil business sector in the United Arab Emirates (UAE). The report has been shared by Reuters which points to the result of a survey of the Purchasing Managers’ Index (PMI), backlogs in the non-oil business sector of the United Arab Emirates saw a little slowdown in growth in March due to supply restrictions caused by the disruption of shipping in the Red Sea. In addition to this, The seasonally adjusted S&P Global UAE PMI finally maintained above the 50 level in March, indicating growth, but slowing down to 56.9 from 57.1 in February. 

Senior economist at S&P Global Market Intelligence, David Owen states “The overall picture for the UAE non-oil private sector remained rosy at the end of the first quarter. The latest PMI reading of 56.9 in March signalled a robust upturn in business conditions, with order book inflows and activity levels still growing sharply.” 

The statement of the senior economist shows that the non-oil business sector in the UAE faced immense pressure on their workloads, with reports of administrative delays and raised supply constraints because of the Red Sea shipping crisis. It is worth noting that the Red Sea shipping crisis is badly affecting worldwide trade. Majorly, developing countries are facing the effect due to disruption caused by the Red Sea shipping route. In this regard, the United Nations Conference on Trade and Development (UNCTAD) expressed deep concern about the global trade disruption that happened due to the ongoing Red Sea crisis. 

UNCTAD said earlier this year, “Disruptions in grain shipments from Europe, the Russian Federation and Ukraine pose risks to global food security, affecting consumers and lowering the prices paid to producers.”

UAE’s non-oil business activity growth reduction in March is the result of the ongoing shipping disruption in the Red Sea crisis. However, there is a slight reduction in the growth but still, it is a concerning matter. As a consequence of the disruption of the ongoing crisis, the data signalled the joint-fastest accumulation of backlog of work in the 15-year history of the survey. The output sub-index decreased to 62.7 last month from a nearly five-year high in February, but the growth trend persisted thanks to incoming orders and ongoing projects.

The survey said that the backlogs of work sub-index increased to its joint highest level of 59.8 previously recorded in June 2018 from 56.4 in February. The contributing factors are administrative delays, strong demand and of course Red Sea disruption to shipments. The new orders sub-index grew to 61.5 in March as compared to the previous month. In February it was 60.4 and in March it was 61.5,  now this shows the continued strong demand in the market. The survey further displayed that optimism about the outlook among the non-oil business sector surged in March to its best level in 6 months. 

Owen said, “While the surge in backlogs is concerning as an indicator of business health, the pent-up demand should support activity growth for even longer once these issues are resolved.”

Also Read: The UAE and Saudi Arabia: Leading the Way in Global Entrepreneurship

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