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The UAE could see the script flip on its economic growth this year if the war lasts another month, according to Goldman Sachs, which warned in a recent research note seen by EnterpriseAM that GDP could contract by around 5% this year if the conflict persists through the end of April.
This would be a major twist for the UAE, which was expected to be the fastest growing economy in the Gulf this year, with forecasts ranging between 4.8% and 5.6% growth for the upcoming year, led by the non-oil sector.
The UAE is highly exposed in multiple ways to the ongoing conflict, with maritime chokepoints and airspace closures effectively unplugging the federation from global trade, as well as expected hits to some of its biggest revenue sources, from tourism to real estate and finance.
The UAE’s oil sector is expected to see a 16% annual decline in output — an outcome expected under a scenario where a prolonged closure of the Strait of Hormuz interrupts production capacities. While significant, this is notably lower than the 25%+ losses projected for neighbors like Qatar and Kuwait. This is largely due to the UAE’s capacity to divert some of its crude via the Adcop (or Habshan-Fujairah pipeline). In contrast, Qatar, Kuwait, and Bahrain are entirely dependent on the Strait of Hormuz for their hydrocarbon exports.
Perhaps most striking is the outlook for the UAE’s non-oil economy, which Goldman projects could contract by over 6% — a decline that would eclipse the 2020 pandemic downturn, the report indicates. This economic slump is driven by high-impact losses of 10% across critical industries — including tourism, real estate, logistics, and manufacturing — as the conflict triggers airspace closures, supply chain ruptures, and a scarcity of labor and materials. Meanwhile, sectors like wholesale and retail trade and finance are expected to see a moderate impact of 5% in output loss.
The 5% contraction forecast from Goldman is significantly more bearish than other recent revisions, though it’s made with a significant scenario in mind. with S&P earlier this month slashing its UAE growth forecast for the year to 2.2% (down from an initial 4.7%). Meanwhile, BMI also downgraded its growth projection by 0.6 percentage points to 5%.
