UAE economy: On the brink or bouncing back?

In the aftermath of tensions between the United States and Iran, the UAE government offered incentives to residents for enticing visitors to the country between July and October. Despite this, Dubai's hotel occupancy rates plummeted from 80% to approximately 10%. Many hotels have closed or offered 50% discounts to UAE residents to encourage staycations.

Out of the 11.8 million residents, around 10.4 million are non-nationals, including expats who work on construction sites or as cleaners, sending their wages home. The UAE has announced a more flexible approach to tax residency rules to encourage return of the wealthier expats.

The UAE has set aside around $680 million to assist affected sectors, exempting hotels, restaurants, and some private schools from municipal costs or delaying licensing fees. However, foreign direct investment in the Gulf states is expected to drop, and the GDP will fall for the first time since the COVID-19 pandemic, according to analysts. There is still a risk of a regional conflict reigniting, which will keep investors cautious for the remainder of the year. UAE real estate prices have also fallen.

While some reports paint a picture of a struggling economy, UAE leaders have given the opposite impression. The UAE's ambassador to the US, Yousef Al Otaiba, stated that the country is one of the most financially resilient economies. Abdul Aziz al-Ghurair, chairman of the UAE Banks Federation, also expressed no fear about capital leaving the country or a dollar shortage. It seems more likely that the UAE's currency swap line request was a precautionary measure rather than a sign of acute distress.

The monetary base in the UAE fell by 8% in March, but the UAE's underlying position is strong, and the decline has since stabilized. High summer in the UAE, when temperatures rise uncomfortably high, is also the country's low season. The realization that there might be a new normal that could drag on for a long time has not yet sunk in.

Sectorally, most of the damage is concentrated in retail, transport, storage, and tourism, with international visitor inflows not expected to return to 2025 levels until 2028. However, more insulated sectors like financial services and government-linked activity are partially offsetting losses, which is why the overall picture appears better than the hospitality data alone suggests.