IMF Sees Mild UAE Economic Contraction in 2026

The International Monetary Fund (IMF) expects the United Arab Emirates' economy to experience a slight contraction in 2026 as the ongoing conflict in the Middle East dampens activity across key non-oil industries. However, the Fund forecasts a robust recovery in 2027, supported by stronger oil exports and improved regional conditions.

The assessment came at the conclusion of the IMF's annual mission to the UAE, with officials noting that elevated oil prices triggered by geopolitical tensions are likely to help the government maintain a fiscal surplus this year, offsetting some of the economic pressures facing the broader economy.

The latest outlook marks a notable shift from the IMF's projections issued in April, when it anticipated the UAE economy would expand by 3.1% in 2026. That forecast was based on expectations that trade flows and maritime traffic would normalize by mid-year following disruptions linked to the Iran conflict.

According to the IMF, prolonged uncertainty surrounding the duration and intensity of the regional conflict, combined with intermittent disruptions to shipping through the Strait of Hormuz, has weighed heavily on the UAE's non-oil economy.

Tourism, trade, transportation, and real estate have all slowed after posting strong performances in 2025, reflecting weaker business confidence and logistical challenges caused by the conflict.

Despite the softer economic environment, the IMF said the UAE's banking sector remains resilient, supported by strong capital buffers and ample liquidity. Credit and deposit growth have continued, underscoring the financial system's stability even as broader economic activity moderates.

The Fund also noted that the property market lost momentum during the first half of the year following several years of rapid expansion. While real estate prices have generally remained at or above 2025 levels, policymakers were encouraged to continue closely monitoring market developments.

Recent data from Dubai also point to a moderation in economic activity. The emirate reported annual GDP growth of 2.4% in the first quarter of 2026, down from 4% recorded during the same period a year earlier.

Authorities attributed part of the change to revisions in the emirate's GDP data series following updated economic surveys, although the figures also reflect the broader slowdown affecting non-oil sectors amid heightened regional uncertainty.

While the IMF expects short-term growth to remain under pressure, the Fund believes stronger oil production and exports, together with an easing of geopolitical disruptions, could pave the way for a significant economic rebound in 2027.