A. SREENIVASA REDDY(ABU DHABI)
The UAE’s real GDP is expected to grow 10.4% in 2027 after a moderate 1.6% projected expansion in 2026, according to the latest quarterly report from the Central Bank of the UAE (CBUAE).
According to the report, the UAE economy expanded by 3% year-on-year in Q1 2026, driven mainly by strong non-hydrocarbon performance. Non-oil GDP grew by 4.8% during the quarter, underscoring the continued expansion and diversification of the economy.
Hydrocarbon activity, however, softened by 3.5% year-on-year in Q1 2026, reflecting a temporary reduction in oil and gas production during March, the CBUAE said.
The central bank expects hydrocarbon GDP to expand by 2.4% in 2026 before accelerating sharply by 26.8% in 2027, supported by an expected normalisation of production conditions and an increase in oil production to 5 million barrels per day in 2027.
Non-hydrocarbon GDP, which grew 6.8% in 2025, is projected to expand by 1.3% in 2026 and 4.9% in 2027, supported by activity across a broad range of non-oil sectors.
“This favourable outlook is underpinned by strong macroeconomic fundamentals, sizeable fiscal buffers, and supportive proactive policy measures, including the CBUAE Financial Institution Resilience Package, Dubai’s Dh2.5 billion initiative, and continued infrastructure-related public spending,” the report said.
The report said the UAE entered 2026 with strong fiscal buffers, supported by low public debt and substantial sovereign assets, providing room to support economic activity when needed. It said ongoing policy measures and infrastructure-related public expenditure were expected to help maintain favourable conditions for businesses and investment.
Within the non-oil economy, financial and insurance activities were the strongest contributor to growth in Q1, expanding by 17.3% and contributing 2.4 percentage points to non-oil GDP growth. The sector’s share of non-oil GDP increased to 15.8% from 14.1% a year earlier.
Construction expanded by 8.1%, contributing another 1 percentage point to non-oil growth, while its share of non-oil GDP rose to 13.2% from 12.8%. Human health activities grew 7.7%, information and communication increased 5.9%, and professional, scientific and technical activities expanded 4.9%.
Wholesale and retail trade remained the largest non-oil sector, accounting for 15.8% of non-oil GDP, and grew 2.6% year-on-year. Manufacturing, however, contracted 3%, transportation and storage declined 2.2%, while accommodation and food services fell 5.8%.
The hydrocarbon sector showed a marked change in momentum after the first quarter. Oil production averaged 2 million barrels per day between March and May 2026, compared with 2.9 million barrels per day in the corresponding period of 2025.
Production subsequently rose to a near-record 3.8 million barrels per day in June and July, representing year-on-year increases of 25.9% and 20.3%, respectively. The CBUAE said the rise partly offset lower production earlier in the year and was expected to support hydrocarbon activity over the remainder of 2026.
Gas production, meanwhile, fell 12.3% year-on-year in the first quarter and 32.5% in the second quarter.
Inflation in the UAE is forecast at 2.4% in 2026 and 1.9% in 2027, remaining below global averages, according to the CBUAE.
The central bank said the near-term inflation outlook continued to be shaped mainly by supply-side pressures linked to regional uncertainty and its impact on global energy markets, shipping costs and food prices.
“Contained housing costs, regulated staple food prices, and close monitoring of key consumer prices support stability, while easing global cost pressures and effective policy measures reinforce a moderate low-inflation outlook,” the report said.
The report said inflation is expected to ease to 1.9% in 2027 as global cost conditions moderate and measures supporting price stability remain effective.