Improving momentum in the UAE economy as regional conditions stabilize and demand strengthens
Regional economic momentum in the Gulf continues to draw attention as shifting geopolitical conditions and diversification efforts reshape growth expectations. Against this backdrop, new research from Standard Chartered offers an updated view on the UAE’s business cycle heading into the third quarter of 2026. The bank’s global research unit forecasts stronger momentum in UAE business activity in Q3 2026 as regional tensions ease and focus turns to the speed and scale of recovery across the GCC.
The outlook reflects improving conditions in domestic demand and external trade, while underscoring resilience in the UAE’s non-oil economy even during periods of regional disruption. According to the analysis, the UAE’s June S&P Global Purchasing Managers’ Index (PMI) remained above the 50-point threshold, signalling continued expansion in non-oil private sector activity despite heightened uncertainty. This sustained expansion aligns with earlier PMI readings that have consistently shown growth momentum through external shocks, supported by diversified activity and strong domestic fundamentals.
Non-oil growth is described as being primarily driven by domestic consumption and investment, while external demand is expected to recover gradually as regional trade routes stabilize and cross-border activity normalizes. Overall, the trends point to an economy relatively insulated from short-term volatility while continuing to benefit from long-term diversification strategies. Standard Chartered also highlights that this resilience is becoming increasingly important as global growth patterns remain uneven and investors reassess regional risk premiums. It adds that the UAE’s positioning as a logistics, financial, and trade hub continues to support steady inflows of capital and business activity.
Domestic demand drivers
Within the UAE’s growth story, domestic demand continues to act as a key stabilizing force for the broader economy. Rola Abu Manneh, Chief Executive Officer for the UAE, Middle East and Pakistan at Standard Chartered, said the latest PMI reading reinforces the resilience of the UAE’s non-oil economy and private sector activity during a period of regional uncertainty.
She noted that domestic consumption and investment continue to support overall growth, while a gradual recovery in external demand is helping to create a more constructive outlook for the third quarter. She added that these trends reflect the depth of the UAE’s economic fundamentals and its continued role as a leading hub for trade, investment, and capital flows. Her comments underline the importance of internal demand as a stabilizing force during periods of external disruption, particularly in economies with strong infrastructure investment pipelines and diversified service sectors.
Standard Chartered expects three key drivers to support stronger momentum in the third quarter, including softer oil prices, a recovery in the job market, and an acceleration in investment growth as regional governments continue to prioritize economic diversification and the development of new trade corridors. These factors are expected to reinforce private sector activity and sustain non-oil expansion into the second half of 2026. The bank also notes that sustained capital expenditure across infrastructure, logistics, and services is helping to deepen the UAE’s growth base beyond hydrocarbons. Improving labour market conditions are also expected to support household spending and strengthen demand in key domestic sectors. Together, these dynamics suggest that internal demand will remain a central pillar of growth even as external conditions gradually normalize.
Gulf trade stabilization emerging
Trade and energy flows across the Gulf are showing early signs of stabilization following recent disruptions, with recovery patterns varying across the region. The bank’s analysis highlights that the partial reopening of the Strait of Hormuz, combined with earlier rerouting of oil exports, has already contributed to a near full recovery in the UAE’s oil export flows. This recovery reflects the adaptability of regional energy and logistics networks in responding to geopolitical disruptions, as well as the UAE’s strategic role in global energy trade routes.
At a broader regional level, oil exports are recovering at a more gradual pace, indicating uneven normalization across GCC economies depending on their exposure to shipping routes and production adjustments. While energy trade is stabilizing, the broader recovery in non-oil sectors is becoming increasingly important in shaping overall growth dynamics. As a result, the UAE’s continued diversification into non-oil industries is expected to play a central role in sustaining economic momentum as global demand conditions and regional trade patterns evolve. This shift also highlights how resilience is growingly tied to economic complexity rather than reliance on any single sector. Improved logistics coordination and investment in alternative trade corridors are helping reduce vulnerability to future disruptions.
Market observers note that these adjustments are likely to support more balanced growth across the GCC over the medium term. In this context, the UAE’s diversified economic model positions it to capture a larger share of regional recovery as trade and investment flows gradually normalize.
