Gulf PMIs Raise Specter of Stagflation

A purchasing managers’ index is published by S&P Global for Kuwait, Qatar, Saudi Arabia (jointly with Riyadh Bank), and the United Arab Emirates. The PMI is a monthly business survey that asks senior management at companies in the non-oil sector about current and expected future business conditions. The PMI is a useful leading indicator of economic conditions.

In March, PMIs across the Gulf region had fallen, reflecting the impact of the U.S.-Israeli war with Iran. In April, business conditions improved in Kuwait, Qatar, and Saudi Arabia, although the PMIs in Kuwait and Qatar remained below 50, indicating that more companies were still seeing business conditions deteriorate rather than improve. In Saudi Arabia, the PMI moved back above 50 in April (to 51.5 from 48.8 in March), while in the UAE, the PMI weakened slightly further in April to 52.1 (52.9 in March), its weakest level since early 2021.

Source: S&P Global, Riyadh Bank

A feature of the April PMIs for Qatar, Saudi Arabia, and the UAE was the evidence of mounting price and cost pressures in the non-oil sector. The press release for Saudi Arabia noted that “non-oil companies experienced a rapid increase in cost burdens in April as regional instabilities impacted raw material and freight prices. Overall input costs rose at the fastest rate in the survey’s history.” The press release for the UAE commented that, “In order to contain the impact on business margins, average prices charged by firms rose at a historically sharp pace during April. In fact, the rate of inflation was the fastest recorded since June 2011.” For Qatar, it was noted that, “Overall price inflation accelerated sharply to a 16-month high, and was well above the long-run survey average.”

Stagflation Ahead?

The International Monetary Fund’s April 2026 “World Economic Outlook” projected that the Iran conflict would slow global growth and increase inflation, i.e., it would lead to “stagflation.” Although the channels of transmission are different, the April PMIs suggest that stagflation could also be a risk for the Gulf region. For countries outside the Gulf, the main channel through which the conflict affects their economies is the surge in oil prices and the shortages of key oil-related products. For the Gulf, the prices of oil products are still often subsidized, and the main transmission channel is through shipping and air transport disruptions, which make imports costlier.

The path of Gulf economies going forward will be determined by the conflict. Renewed hostilities, which seem a growing risk, would once again hurt business confidence and the growth outlook while putting further upward pressure on prices. A move to a more durable cease-fire, on the other hand, could be expected to underpin a further rebound in confidence and make a recovery in economic activity from the middle of the year more likely. A reopening of established transport routes would also ease price pressures. Last, how governments respond to rising price pressures will also play a role. Increased subsidies or other ways of containing price passthrough to consumers may limit the increase in the official consumer price indices.

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