The UAE’s non-oil economy is expected to contract by 3.7 per cent in 2026 before recovering with growth of 6.1 per cent in 2027, according to Fitch Ratings, as Gulf economies prepare for a gradual recovery from the effects of the US-Iran conflict.
The ratings agency forecasts non-oil growth of 4.3 per cent in 2028, which would remain below the average recorded between 2022 and 2025. The projections reflect the impact of regional instability on shipping, energy production, trade, tourism and investment.
The World Bank has also forecast a sharp contraction across the Gulf Cooperation Council (GCC) this year, followed by a strong rebound as hydrocarbon production and exports recover.
In its October Middle East, North Africa, Afghanistan and Pakistan Economic Update, the World Bank projected the GCC economies would shrink by 4.3 per cent in 2026, compared with growth of 4.5 per cent in 2025.
Regional economic growth is expected to reach 10.3 per cent in 2027. The UAE’s overall economy is forecast to expand by 9.5 per cent next year after contracting by 1.6 per cent in 2026, the report said.
The World Bank attributed the slowdown to major reductions in oil and gas production and exports following the closure of the Strait of Hormuz. The disruption has also affected aviation, logistics and tourism, placing additional pressure on economic activity.
The forecasts assume the conflict continues until the end of 2026 without a sustained escalation. A gradual improvement is expected from early 2027 as shipping routes reopen and energy production recovers.
Regional instability poses risks
Fitch said the UAE’s non-oil economy has benefited from its position as a major commercial hub connecting Asia and Europe. Government policies, a business-friendly environment and the ability to attract foreign workers and visitors have supported growth.
Further improvements to administrative procedures for businesses and residents, alongside increased spending and financial support from government entities, could help economic activity recover.
However, Fitch warned that prolonged regional insecurity could weaken the UAE’s logistical advantages and affect its appeal as a commercial, financial and tourism centre.
Continued disruption to the Strait of Hormuz could complicate trade and transportation, while security concerns could discourage foreign companies and residents from choosing the country. The agency also highlighted the economy’s dependence on foreign workers as a potential vulnerability.
Credit ratings remain resilient
The UAE’s AA- sovereign rating with a Stable outlook and Abu Dhabi’s AA rating with a Stable outlook are supported by the emirate’s exceptionally strong balance sheet, Fitch said. The ratings are considered resilient to changes in non-oil economic performance, partly because of the country’s relatively light tax burden.
Ras Al Khaimah faces greater pressure, with its A+ rating carrying a Negative outlook. Fitch said the emirate’s anticipated improvements in economic growth and public finances depend heavily on tourist arrivals, making it more vulnerable to a prolonged regional downturn.
The pace of recovery will depend on developments in the conflict, the reopening of shipping routes and the restoration of energy production, as well as the return of confidence among businesses, investors and visitors.
