UAE can absorb spending pressure, recover quickly from short conflict, says World Bank

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The World Bank on Thursday lowered growth forecasts for the Gulf Cooperation Council (GCC) and Middle Eastern countries in 2026 due to the regional conflict, but said the UAE has sufficient fiscal space to absorb temporary spending pressures and recover quickly from a short conflict.

According to the latest edition of the World Bank Group’s Economic Update for the Middle East, North Africa, Afghanistan and Pakistan (MENAAP), overall growth in the region is expected to slow from 4.0 per cent in 2025 to 1.8 per cent in 2026, excluding Iran. This forecast is 2.4 percentage points below its January projections.

“The decline is concentrated in Gulf Cooperation Council economies and Iraq, which are heavily affected by the conflict. Growth in the GCC has been downgraded by 3.1 percentage points since January and is now projected to slow from 4.4 per cent in 2025 to 1.3 per cent in 2026,” the World Bank said.

It forecast the UAE to record higher growth than the GCC average, with the Emirates’ economy expected to expand by 2.4 per cent in 2026. This is down by 2.7 percentage points from its January 2026 forecast. Among other regional countries, it revised Saudi Arabia’s GDP growth to 3.1 per cent, Bahrain to 1.3 per cent, and Oman to 2.4 per cent.

Kuwait and Qatar’s economies are expected to shrink by 6.4 per cent and 5.7 per cent, respectively, according to the World Bank.

The World Bank said fiscal resilience varies sharply across the region.

“Countries such as Qatar, Saudi Arabia, and the UAE have sufficient fiscal space to absorb temporary spending pressures and recover relatively quickly from a short conflict. Others face far more constrained circumstances. Lebanon, still operating under severe fiscal stress following its 2020 sovereign default, has limited financing options,” the latest biannual analysis said.

The UAE is home to some of the world’s largest sovereign wealth funds (SWFs), led by the Abu Dhabi Investment Authority. These funds manage assets equivalent to 460 per cent of GDP, of which 30 per cent are domestic assets. The UAE ranks fourth globally in total assets under management as a share of GDP and first in domestic assets under management as a share of GDP. The Emirates’ SWFs had $2.93 trillion worth of assets under management at the end of 2025.

The US and Iran reached a ceasefire deal after a military conflict lasting more than a month. Tehran had also closed the Strait of Hormuz during the war, pushing oil prices above $110 a barrel.

However, the UAE and Saudi Arabia, which benefit from partial rerouting capacity, face comparatively smaller but still sizeable contractions of 23 per cent and 25 per cent, respectively, the World Bank said.

“The current crisis is a stark reminder of the work ahead for the region: not only to weather shocks, but to rebuild more resilient economies with stronger macroeconomic fundamentals, innovate and improve governance, invest in infrastructure, and boost employment-creating sectors,” said Ousmane Dione, World Bank’s vice president for MENAAP.

“Peace and stability are preconditions for the region’s durable development. With peace and the right actions, countries can build the institutions, capabilities and competitive sectors that create opportunities for people,” he added.

In addition, the World Bank said the regional tourism sector also faces significant stress and near-term income loss due to airspace closures following the conflict.