Iran war hits non-oil business across the Middle East

• UAE PMI falls from 55 to 52.9
• Short-term uncertainty hits Saudi index
• Kuwait, Qatar and Egypt also down

The Iran war has had a significant impact on the non-oil sector across the Middle East in March, according to business surveys. 

UAE

The UAE non-oil private sector was knocked back by the conflict in March, said David Owen, senior economist at S&P Global Market Intelligence.

The seasonally adjusted purchasing managers’ index (PMI) fell from 55 in February to 52.9 in March. 

A PMI score above 50 represents growth, while a reading below 50 indicates contraction.

Sectors such as tourism, retail and logistics were the most affected, whereas technology and construction signalled a softer, but still notable, impact, Owen said.

The Middle East war constrained output, primarily through the closure of supply routes and softer demand conditions, S&P said.

The closure of the Strait of Hormuz led to longer wait times on inputs, as overall vendor performance worsened for the first time since September 2021.

Saudi Arabia

Saudi Arabia’s non-oil private sector economy reported a downturn in new business in March as the Middle East war disrupted supply chains and delayed client spending decisions, Riyad Bank said in a report.

The headline PMI dropped to 48.8 in March from 56.1 in February, indicating a decline in overall business conditions. 

Naif Al-Ghaith, chief economist at Riyad Bank, said this was the first dip below the expansion threshold in over five-and-a-half years, reflecting short-term uncertainty linked to heightened regional geopolitical tensions.

The report pointed to a halt in new projects and clients’ spending decisions as they waited to see the outcome of the conflict. 

Export orders were particularly affected by regional instability last month, with the latest data pointing to the sharpest decline in the kingdom in almost six years.

However, Al-Ghaith said expectations across companies remain positive, underpinned by ongoing government spending initiatives and Vision 2030 transformation programmes.

Kuwait

Kuwait’s non-oil private sector declined during March due to the Middle East war. 

The headline PMI fell below the 50 no-change mark for the first time in 19 months, posting 46.3 in March compared to 54.5 in February.

Companies said the suspension of flights and shipping was a key factor behind reduced new orders and business activity, prompting firms to limit employment and purchasing, Andrew Harker, economics director at S&P Global Market Intelligence, said.

“There were also concerns about the impact of the war on output in the months ahead, with business conditions for Kuwaiti firms largely dependent on how long the conflict persists,” he said.

Qatar

The outbreak of war severely impacted Qatar’s non-energy sector, with S&P Global PMI falling to 38.7 in March, from 50.6 in February, signaling a severe overall deterioration in the non-oil sector. 

The PMI sank to its lowest level since the initial phase of the Covid pandemic in 2020, highlighting the scale of disruption from hostilities in the region, said Trevor Balchin, economics director at S&P Global Market Intelligence.

He said the hiatus in new work led to a steep drop in output and marked pessimism regarding the next 12 months, with 70 percent of companies expecting output to contract. 

Egypt

Egyptian companies reported a steeper decline in business activity in March, as demand weakened and prices rose due to the Iran war, S&P said in a report. 

The PMI fell for a fourth successive month in March, declining from 48.9 in February to 48. 

The PMI declined to a 23-month low, with panel members indicating that the Middle East war had weakened demand, said S&P Global Market’s Owen.

Input prices increased sharply last month, as commodity prices rose as a result of the war and a weaker pound against the US dollar, he said.

As the US dollar strengthens and energy prices remain elevated, Egyptian companies are clearly feeling the impact on their balance sheets, Owen said.

However, employment was broadly stable following job cuts since the end of last year, the report said.