IMF is less bearish on UAE than most forecasters, says buffers are holding

The UAE’s GDP is expected to be “slightly lower” in 2026 before rebounding strongly next year, the International Monetary Fund (IMF) said in a statement following a staff visit to Abu Dhabi and Dubai. The drag is coming from weaker non-oil activity, with conflict-related uncertainty weighing on tourism, transport, trade, and real estate. Inflation is expected to edge higher this year as rising global food and energy prices feed through.

The recovery case: Assuming a gradual normalization between the US and Iran, the IMF expects activity to pick up in 2H as exports recover and oil production rises, with the economy likely to rebound. It sees recovering oil exports and higher production following the Emirates’ exit from Opec as more than offsetting conflict-related disruption.

The buffers helped contain the hit: The IMF said “sound fundamentals, ample policy buffers, advanced preparedness, and a swift policy response” had limited the damage. It pointed to targeted government support, rerouted trade flows, and the CBUAE’s five-pillar Financial Institution Resilience Package, launched at the start of the war to give banks greater access to reserves and additional AED and USD liquidity.

How that stacks up: The IMF is far less bearish than Moody’s, which forecasts a 7% contraction, and Goldman Sachs, which projects a 5% drop. Instead, the Fund’s outlook sits closest to Oxford Economics’ forecast of a minor 0.2% contraction. The World Bank remains the outlier on the upside, projecting 2.4% growth in 2026.

The public finances are holding: The fiscal balance is expected to remain in surplus, although the surplus will narrow as weaker non-oil revenue and support measures weigh. Higher oil prices, front-loaded dividends, and spending-efficiency measures should help absorb the pressure, while low government debt leaves “ample fiscal space” if the conflict becomes more severe or prolonged.

REMEMBER- The external account remains in surplus too: The UAE entered the year with a current account surplus of AED 300.2 bn, or 13.3% of GDP, in 2025. The IMF expects the surplus to recover from the narrowing over the medium term, with reserves still providing comfortable import coverage.

Banks remain resilient: Capital buffers are well above regulatory requirements, and liquidity remains ample, even after tightening since the conflict began. Credit and deposits are still expanding, although private-sector credit growth is expected to slow alongside weaker non-oil activity.

What to watch: Real estate activity moderated in 1H after several years of strong growth, with uneven pressure across segments and locations, although prices generally hovered either around or above last year’s levels. The IMF said banks’ exposure remains contained but noted that market conditions warrant “continued monitoring.”

The policy prescription: Keep support targeted and ready to scale if conditions worsen while pressing ahead with diversification, deeper trade integration, stronger supply-chain resilience, and investment in technology and human capital.