UAE economy contracts 2.1% in 2Q as war hits non-oil activity

The UAE economy slipped into reverse in 2Q as the war hit its non-oil engines. Real GDP contracted 2.1% y-o-y to AED 476.9 bn in 2Q 2026, with non-oil activity shrinking 1.1% as regional disruptions weighed on tourism, transport, and trade, according to preliminary data from the Federal Competitiveness and Statistics Center cited by Wam. The contraction left 1H growth barely in positive territory at 0.4%, with GDP reaching AED 961.9 bn (USD 262 bn).

Oil took the bigger hit: The headline contraction is nearly twice as deep as the non-oil decline, which means oil output fell considerably faster. On our rough math, oil GDP dropped around 5-6% y-o-y in the quarter. The FCSC didn't publish a separate oil figure.

ICYMI- 1Q looked resilient at the time, with GDP up 3% and non-oil activity up 4.8%. But the war broke out in late February, so 1Q captured only about a month of disruption. 2Q is the first full quarter of data.

Diversification provided a cushion — but not immunity: Non-oil GDP still grew 1.8% across 1H, lifting its share of the economy to 79.2% from 78.1% a year earlier. But the six-month figure masks the 2Q reversal, with non-oil activities down 1.1%, as some of the sectors central to the UAE’s diversification drive were among those hit by disruptions to travel and trade.

Finance kept growing: Financial and ins. activities led 1H growth at 14.8%, followed by information and communications at 7.3%, health and social work at 6%, and construction at 5.1%. Trade remained the largest contributor to non-oil GDP at 16.2%, followed by finance at 15.2%, construction at 13.1%, and manufacturing at 11.8%.

The rebound may already be underway: 2Q was the low point in business surveys too: The UAE’s non-oil private-sector PMI slipped to 50.8 in June, its weakest June reading in more than five years, as businesses grappled with weaker tourism demand, delayed spending decisions, and higher costs. The latest GDP figures show how that pressure translated into an economy-wide contraction in 2Q, even as the PMI remained marginally in expansion territory.

But it isn't a clean recovery: Firms raised selling prices at the fastest rate in more than 15 years in September as input and freight costs climbed, and business optimism remains subdued. S&P Global also flags risks for the non-oil private sector as firms struggle to keep drawing on inventories without squeezing margins, given their reliance on imported inputs and overseas markets, according to Asharq Business. Still, it doesn't expect the UAE economy to contract over the full year.

ZOOM OUT- The Gulf has a bigger problem: The World Bank expects GCC economies to contract 4.3% in 2026, reversing its earlier growth forecast as the war disrupts energy production and exports. It sees the UAE contracting 1.6% this year, as we reported on Friday. The UAE has some protection through its Habshan-Fujairah pipeline, which can bypass the Strait of Hormuz — but that does little to shield its tourism, transport, and trade sectors from the wider disruption.