The UAE economy has shown remarkable resilience to the conflict in the Middle East, according to an International Monetary Fund (IMF) staff team led by Mr Said Bakhache, which visited Abu Dhabi and Dubai during July 7-16, 2026, to discuss recent economic and financial developments, the outlook, and the authorities' policy priorities.
In a statement, Mr Bakhache said, "The UAE economy has demonstrated significant resilience amid the geopolitical conflict in the Middle East. Sound fundamentals, ample policy buffers, advanced preparedness, and a swift policy response have contained the overall impact of the shock. The authorities' timely and well-targeted support measures have helped preserve financial stability, safeguard essential supply chains, support affected sectors and households, and sustain market confidence—underscoring the UAE's institutional capacity to navigate a major external shock.”
2026
The statement was released on 17 July, more than a week after Iran and the US resumed strikes against each other on 8 July, breaking a ceasefire that had begun on 17 June.
Mr Bakhache said, "Although uncertainty about the duration and intensity of the ongoing conflict remains elevated, and the on-and-off closure of the Strait of Hormuz is weighing on activity, assuming a gradual normalisation between the US and Iran, the economy is expected to rebound in the second half of the year as exports recover and OPEC+ quotas no longer bind.
“Nonetheless, following robust expansion in 2025, overall GDP is expected to be slightly lower in 2026, driven by a slowdown in non-hydrocarbon activity as heightened uncertainty weighed on tourism, transportation, trade, and real estate. Hydrocarbon growth is expected to pick up in the second half of the year, as recovering oil exports and the ramp-up in production following the UAE's exit from OPEC more than offset conflict-related disruptions.”
2027
Mr Bakhache said, “In 2027, overall growth is projected to rebound strongly, as hydrocarbon production scales up and non-hydrocarbon activity recovers, supported by normalising tourism and trade flows. Inflation is expected to edge up in 2026, reflecting the pass-through of higher global energy and food prices, before gradually easing over the medium term.”
Fiscal balance
The statement also said, "The general government fiscal balance is expected to remain in surplus in 2026, supported by favourable oil revenues and conservative budgeting practices. While the surplus is projected to narrow, high oil prices, frontloaded dividends, and expenditure-efficiency measures help offset revenue pressures from weaker non-oil activity, even as targeted support to affected sectors and households and planned infrastructure projects continue. Strong profitability, prudent balance-sheet management, and improved liquidity have left public and private sectors well positioned to weather the impact of the conflict. Low general government debt provides ample fiscal space to respond to a more severe or prolonged shock if needed.
“The external position is also expected to remain in surplus, though moderating in 2026 before recovering over the medium term, as disruptions to non-hydrocarbon trade ease and oil exports increase. International reserves remain ample and continue to provide a comfortable level of import coverage.
"Financial conditions have remained broadly resilient, with some softening in the real estate sector. Banks remain adequately capitalised, with capital buffers well above required ratios, and liquidity —though tightened since the beginning of the conflict—remains ample, with credit and deposits continuing to expand. Private sector credit growth is expected to moderate, reflecting a slowdown in non-hydrocarbon activity. Real estate activity moderated in the first half of 2026 following several years of strong expansion, with an uneven impact across segments and locations, though prices generally remained at or above their 2025 levels. While the banking sector's exposure to real estate is contained, evolving market conditions warrant continued monitoring.
"In view of the elevated uncertainty that weighs over projections, and the considerable upside and downside risks, economic policies should remain agile and continue to focus on maintaining economic and financial stability and mitigating the economic impact of the conflict, with proactive and well-targeted responses that could be scaled up if downside risks materialise.
“Advancing diversification and continued structural reforms remain key to sustaining growth. Deeper trade integration, supported by the Comprehensive Economic Partnership Agreements and National Programme to Strengthen Supply Chain Resilience, together with sustained investment in technology and human capital, would reinforce non-oil growth and support resilience to external shocks.”