The rise of the non-oil engine: The UAE economy effectively decoupled from oil price fluctuations in 2025 as the non-oil sector evolved from a secondary character to the primary engine of growth. This script switch saw the non-oil sector’s contribution hit a record 77.5% of real GDP in 1H 2025, driving total real GDP growth to 4.2% and reaching a value of AED 929 bn. The shift was seen across emirates, with Abu Dhabi seeing non-oil activities accounting for 56.8% of its economy for the first time in 2Q 2025.

Private sector performance also did well: Despite regional geopolitical headwinds that temporarily slowed the purchasing managers’ index (PMI) to a low of 52.9 in July, the private sector showed resilience and staged a turnaround before the year was out. By November, the index rose to an 11-month high of 54.8 points, boosted by favorable market conditions and a jump in new orders.

This recovery coincided with a controlled inflationary environment, as the country’s headline inflation remained largely contained, stabilizing at 0.6% y-o-y by the end of 2Q 2025 due to lower energy costs. While Dubai saw a temporary spike to 3.36% in October, it cooled back to 2.73% in November, driven by a slowdown in rental and fuel price growth.

Legislative overhaul: From tax ease to institutional compliance

These figures were also supported by fiscal overhaul measures from the Finance Ministry to improve fiscal sustainability, including some tax changes and moves to maintain a favorable business environment. To align with OECD global standards, the UAE raised the minimum corporate tax for large multinational companies from 9% to 15% (domestic minimum top-up tax) from 1 January.

Other legislative milestones: The reforms also included the approval of the e-invoicingsystem, expanding the scope of exemptions for freezone companies, and imposing qualitative taxes such as Sharjah’s introduction of a 20% natural resources tax. This is in addition to new amendments to the Tax Procedures Law announced earlier this month. These measures aim to shift the economy from reliance on tax ease to full institutional compliance.

Legislative flexibility to support investment and family businesses: To maintain the country’s attractiveness as a financial hub, the Finance Ministry balanced new taxes with qualitative incentives. Freezone exemptions were expanded to include strategic sectors such as chemicals and environmental goods, and companies were allowed to deduct depreciation of investment properties from their taxable income. The Federal Tax Authority also launched facilities that allow family foundations to be treated as unincorporated partnerships, giving them greater flexibility in managing their wealth for tax purposes.

We’re going into a big spending year

Looking ahead to 2026, the UAE is placing its biggest bet on public spending. Cabinet approved the largest federal budget in the country’s history for 2026, with spending set to rise 29.2% y-o-y to AED 92.4 bn. This fiscal expansion aims to ensure the continuity of growth momentum amid diverging expectations from international institutions; while the CBUAE and BMI Research are optimistic that growth could hit 5.2%, Standard Chartered Bank adopts a more conservative view at 4%.

The federal inflation rate may accelerate in 2026 to 1.8%, according to estimates from the CBUAE, up from this year’s forecast of 1.3%. Other forecasts from the IMF, World Bank, Standard Chartered, and the ICAEW see inflation falling anywhere between 1.9-3%, while NBK thinks inflation could decelerate to below 2% in 2026 on the back of a slowdown in rental price growth in Dubai and a drop in food and fuel inflation.

The big question of 2026: How successful major projects such as the Etihad Rail network and the Unified GCC Tourist Visa will be in attracting sufficient investment flows to counter a potential acceleration of inflation.

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