UAE Economy: On the Verge of Collapse or on Way to Recovery?

In July, the United Arab Emirates (UAE) offered a tempting deal to residents: If they could attract visitors to the country between July and October, they would receive a package worth around $800. This offer came despite international travel warnings due to tensions with Iran. Following the Israeli-U.S. strikes on Iran in February, Iran retaliated by attacking U.S. allies, including the UAE. Hotel occupancy in Dubai dropped from 80% to around 10% as a result.

Many UAE hotels have since closed prematurely for renovations, while others have offered 50% discounts to attract residents for staycations. With around 11.8 million people in the UAE, roughly 10.4 million of them non-nationals, many have left due to security concerns. The UAE has promised a more flexible approach to tax residency rules to encourage their return.

The New York Times reported on the struggles of lower-paid foreigners, with some door-to-door for work. The UAE also allocated $680 million to help affected sectors, exempting hotels, restaurants, and private schools from municipality costs or delaying licensing fees. However, there are worrying signs: foreign direct investment in the Gulf states is expected to decline, and GDP could drop for the first time since the COVID-19 pandemic.

Analysts predict that unemployment and inflation will rise due to factors like the blockage of the Strait of Hormuz. Despite these challenges, UAE leaders have portrayed the economy as resilient. The central bank requested a currency swap line with the U.S. to help the economy cope with the fallout from the Iran war. However, UAE officials deny needing external financial support and emphasize their financial resilience. The country's monetary base fell by 8% in March, but the decline has since stabilized.

While most damage is concentrated in retail, transport, storage, and tourism, sectors like financial services and government-linked activity are partially offsetting losses. However, 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.