Fitch sees UAE non-oil economy shrinking 3.7% in 2026 before rebounding next year

The war is testing the foundations of the UAE's non-oil growth model, Fitch says. The model has rested on the country's role as a hub between Asia and Europe, a light-touch operating environment and its ability to attract foreign companies, workers and tourists. In a special report, the ratings agency says the war has dented only some of those strengths temporarily, but a long period of regional insecurity could undermine others: the UAE's logistics advantages and its image as a safe base for business, finance and tourism.

Non-oil GDP will contract 3.7% in real terms in 2026 before growing 6.1% in 2027 and 4.3% in 2028, the ratings agency said in a special report on the UAE's non-oil growth model seen by EnterpriseAM. That would still leave the non-oil economy 2.2% larger in 2027 than in 2025, but growth would remain well below the 7.4% average of 2022-2025. The forecast assumes the population shrinks 1% this year, then grows 2% in 2027 and 3% in 2028, compared with an average of 4.8% over the previous four years.

That implies a much weaker 2H: Non-oil GDP grew 1.8% in 1H, according to preliminary FCSC figures published over the weekend. That includes a 1.1% contraction in 2Q, the first full quarter of the war. For Fitch’s full-year forecast to hold, non-oil output would need to fall roughly 9% y-o-y in 2H, by our rough math, which is far deeper than anything in the data so far.

Logistics is the most exposed: Ports inside the strait handle about 80% of UAE trade, with Jebel Ali alone handling half. Daily port calls at Jebel Ali fell from an average of 24 in January and February to 3.7 since the war began. Even Fujairah, outside the strait, saw calls fall from 10 to 3.2 under Iranian attacks. Fitch doesn’t expect companies already operating in the UAE to pack up. Instead, it expects global manufacturers and traders to weigh the risk of another Hormuz closure against the UAE’s infrastructure and investment framework, and to hold back on new investment.

Meanwhile, competition is growing from Gulf neighbors. Oman’s ports sit outside the strait and have barely been touched by Iranian attacks. Saudi Arabia has shifted trade to its Red Sea coast, though that route carries its own risk at Bab El Mandeb, and its industrial and financial centers in the east and around Riyadh have been less affected (though that’s changing as Houthi attacks strike deeper into the capital). Riyadh is spending heavily to build capacity it currently gets from the UAE, using incentives to push companies to set up physical operations in the kingdom. Beyond the region, Istanbul, Hong Kong and Singapore could pick up work that can be done from anywhere. Fitch thinks the UAE’s established networks will stay cheaper and more efficient, but some trade will divert anyway.

People are the pressure point: Foreign nationals make up 88% of the population in the UAE, and skilled expats tend to be mobile and sensitive to risk. Companies may base fewer staff in the UAE for roles that can be done elsewhere. Financial and professional services, which together make up about a fifth of non-oil GDP, would be hit hardest if foreign firms and workers left. A falling population would also weigh on real estate, which makes up 8% of non-oil GDP, at a time when new supply is coming to market. Tourism is under pressure too: Fitch expects tourism revenues to fall 40% this year and not to recover to 2025 levels until 2028.

Why Fitch still backs the model: Its base case is that the UAE keeps its competitive edge and that the damage to its reputation fades within two years. That assumes a durable deal to reopen Hormuz around 1Q27. Its track record with recovery from previous shocks, including the 2008-2009 Dubai debt crisis and Covid, as well as similar precedents like Hong Kong, where businesses and professionals have been returning since 2024 after an exodus that once looked permanent, point to strong potential for the country.

Plus: It expects the government to roll out further business-friendly measures, backed by higher sovereign and GRE spending, with Abu Dhabi spending set to jump 19% this year. Oil is expected to do much of the work on the headline number. Fitch forecasts total GDP growth of 0.9% this year, then 8.5% in 2027 as Hormuz reopens more fully and the UAE’s exit from Opec+ lets it raise production to an average of 4.2 mn bbl/d.