Targeted Policy Response Keeps UAE Economy Resilient – IMF
The UAE economy has shown remarkable resilience to the conflict in the Middle East, supported by strong buffers, timely and well-targeted policy responses, including those by the government and the Central Bank Financial Institution Resilience Package, and the rerouting of oil and other trade flows, the International Monetary Fund (IMF) said following a recent visit to Dubai.
The fund said the UAE’s robust balance sheets across governments and government-related entities (GREs) have helped contain the economic impact, preserve financial stability, and sustain confidence.
It noted that fiscal and external balances are expected to remain in surplus, supported by higher oil prices, conservative budgeting, and sound policymaking, while low public debt levels preserve ample fiscal space.
UEA’s banking system remains well-capitalized and liquid, the IMF noted, citing a continuing surge in credit, underpinned by strong positions built ahead of the conflict. Real estate activity has somewhat moderated after several years of strong growth, warranting continued monitoring.
IMF staff team led by Mr. Said 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.
“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 weighs 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.
“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.
“The general government fiscal balance is expected to remain in surplus in 2026, supported by favorable 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 materialize.
“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. #Targeted Policy Response Keeps UAE Economy Resilient – IMF#
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