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Key Points

• The UAE’s economy contracted by 2.1% y/y in Q2 2026 as the impact of the regional conflict became more apparent. The Q2 estimate was the first contraction in the UAE economy since the Covid-19 pandemic and marks a substantial slowdown from the average pace of growth of 6.2% recorded over 2022-25. Thanks to a still strong Q1, however, real GDP expanded by 0.4% in the first half of 2026 compared with the same period last year.

• Since the end of Q2, near-term activity indicators have improved. The S&P Global PMI for the UAE has bounced off a low of 52.1 recorded in April 2026 to more than 55 as of September while the Dubai specific PMI has also recovered over Q3. However, the outlook for the non-oil sector is highly contingent on geopolitical conditions across the region.

• Bypass routes will allow oil and gas to improve steadily in balance of the year. The port of Fujairah, which sits outside of the Strait, have allowed the UAE to continue exporting oil while the UAE left OPEC in May 2026, meaning that it will no longer be bound by production quotas.

• Financial conditions in the UAE are also tightening as a drop off in liquidity reflects strong credit demand, driven partly by substantial project spending from both the private and public sector. Rising rates as local policy follows the Federal Reserve will be another higher cost for the non-oil economy to have to endure.