The International Monetary Fund, following a staff mission to Abu Dhabi and Dubai earlier this month, has identified the UAE’s real estate sector as the primary pressure point in an otherwise resilient economy, while affirming that banking institutions retain strong defensive positions against the wider regional shock.
The Fund’s assessment, delivered Friday, places real estate activity at the center of its concerns. Contraction in the first half of 2026, after years of expansion, has been uneven across market segments and geographic areas. Prices have held at or above their 2025 levels, but the trajectory marks a clear shift from recent performance.
Said Bakhache, the IMF’s mission chief for the UAE, acknowledged that the banking sector’s exposure to property remains “contained.” He was direct, however, about the limits of that reassurance: “evolving market conditions warrant continued monitoring.” Banks retain what the Fund describes as robust capital buffers and liquidity positions, though liquidity has tightened since the US-Israeli war with Iran began on February 28.
The broader economic picture is mixed. The IMF projects overall gross domestic product this year will fall slightly below 2025 levels, before a significant rebound in 2027, should the US and Iran move toward gradual normalisation. Private sector credit growth is expected to moderate as non-hydrocarbon activity slows.
What changed the severity of the initial impact was the speed of the official response. Bakhache commended the UAE authorities’ “timely and well-targeted support measures” designed to protect financial stability, supply chains, vulnerable sectors and households, and market confidence. The state’s advanced preparations and swift policy response substantially offset the disruption caused by the Iran conflict and the effective closure of the Strait of Hormuz.
Uncertainty remains elevated nonetheless, and continues to weigh on tourism, transportation, trade and real estate. These sectors face headwinds that policy measures alone cannot fully reverse while geopolitical tensions persist.
On the hydrocarbon side, the outlook is more optimistic. The IMF expects hydrocarbon growth to accelerate in the second half of the year as oil exports recover and production ramps up following the UAE’s exit from OPEC. Those gains should more than offset conflict-related disruptions to energy output and trade flows.
The UAE’s fiscal and external balances are forecast to narrow but remain in surplus, leaving authorities with sufficient fiscal space and international reserves to manage even a prolonged conflict. That financial cushion provides policy flexibility that many economies in the region cannot claim.
Bakhache stressed that economic policies must remain “agile” given the elevated uncertainty surrounding future projections and the considerable upside and downside risks ahead. He also underscored that advancing economic diversification and continuing structural reforms remain essential to sustaining growth beyond the current cycle.
The IMF’s assessment reflects cautious optimism tempered by a clear-eyed recognition that the economy’s resilience, while evident so far, depends heavily on external developments beyond the UAE’s control. The property sector’s cooling and the tightening of banking liquidity, though contained for now, signal that the conflict’s economic reach extends well beyond energy and trade into the domestic financial system and asset markets. Whether the banking sector’s buffers prove sufficient will depend, in large part, on how long the geopolitical pressure holds.