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UAE leads Middle East growth despite oil and geopolitical headwinds
The region’s average sovereign credit rating has trended upward over the past two years, helped by the introduction of new revenue sources, S&P Global report says
- PUBLISHED: Sun 8 Feb 2026, 9:21 PM
The UAE is expected to remain one of the Middle East’s most resilient economies in 2026, driven by strong non‑oil momentum and solid fiscal buffers, a recent report showed.
According to a study by S&P Global, the UAE’s real GDP is likely to expand by 4.7 per cent this year, with nearly three‑quarters of that growth coming from non‑oil sectors, supported by Dubai’s vibrant private‑sector activity, Abu Dhabi’s infrastructure investments, and major tourism and entertainment projects in the northern emirates.
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The country’s consolidated fiscal position is also projected to stay in surplus, with the general government balance at 2.3 per cent of GDP in 2026, alongside a continued double‑digit current account surplus. This stable outlook aligns with the UAE’s AA/Stable sovereign rating, reaffirmed by S&P Global Ratings in late 2025.
Moderate growth, persistent resilience
Across the Middle East, economic performance in 2026 is expected to hold steady despite lower oil prices and ongoing geopolitical risks. S&P projects regional GDP growth at around 3.5 per cent, up slightly from the previous year. Increased hydrocarbon output, stronger non‑oil economies in countries such as the UAE and Saudi Arabia, and new LNG production capacity in Qatar are expected to support this acceleration.
The region’s average sovereign credit rating has trended upward over the past two years, helped by the introduction of new revenue sources like VAT and corporate taxation, more transparent budgeting practices, and reforms aimed at reducing vulnerability to oil‑price swings. Many states now have materially lower fiscal breakeven oil prices than a decade ago.
However, some countries remain exposed. According to S&P, Bahrain and Oman face greater fiscal sensitivity to prolonged low oil prices, although Oman’s reforms have strengthened its position considerably. Kuwait, despite a projected 9 per cent of GDP fiscal deficit in 2026, sits at the other end of the spectrum with one of the world’s largest sovereign asset pools, estimated to exceed 500 per cent of GDP. These deep reserves underpin its strong credit standing and capacity to absorb shocks.
Geopolitics: A long‑term shadow, short‑term contained risks
Geopolitical tensions remain elevated following the wave of regional escalation that began in 2023. Yet credit and financial systems across the Gulf have historically demonstrated the ability to absorb shocks without broad‑based instability. Baseline expectations for 2026 do not assume a full‑scale regional conflict, and disruptions to credit transmission channels are seen as unlikely unless events turn severe.
Still, the report notes that countries with significant external financing needs — particularly Bahrain, Saudi Arabia, and Qatar — remain vulnerable during periods of heightened uncertainty, largely due to foreign‑liability exposures within their banking sectors. In high‑stress scenarios, capital outflows could place pressure on currency pegs or liquidity positions, though regional support frameworks reduce systemic risks.
Investment climate
Foreign direct investment into the Middle East remains structurally soft and is expected to stay weak in 2026, weighed down by the region’s geopolitical profile. This has implications for countries pursuing large‑scale economic diversification, particularly Saudi Arabia. Despite broad progress under Vision 2030, much of the funding continues to rely on public finances and external borrowing.
Saudi Arabia’s fiscal deficit is forecast to narrow to 4 per cent of GDP next year, supported by higher oil output and expanding non‑oil revenue, but financing pressures remain. Interest costs have more than doubled since 2019, and foreign liabilities of domestic banks have tripled since 2022, lifting external funding requirements.
Overall, the region enters 2026 better equipped to manage shocks than in past cycles. Larger sovereign asset buffers, more flexible fiscal frameworks, and ongoing structural reforms have strengthened resilience. For the UAE in particular, broad‑based growth and stable financial positions place it among the region’s most robust performers — a position reflected in its high sovereign rating and positive forward outlook.
Somshankar Bandyopadhyay is a News Editor with more than three decades of experience. Currently, he manages the news production of the business section, ensuring that the top economic and business news of the day reaches its readers.
