UAE's Non-Oil Sector Projected to Grow 5% by 2026: Driving Economic Diversification

The UAE economy is set to grow 4.3% in 2026, outpacing both global and regional averages, according to Mastercard Economics Institute's latest forecast. The growth comes largely from the non-oil sector, which is expected to expand by 5%, driven by heavy investments in AI integration and digital infrastructure.

The forecast puts the UAE ahead of most regional economies. Qatar leads with 4.9% growth thanks to increased natural gas production, followed by Egypt at 4.4%. Saudi Arabia is projected to grow 3.6%, while Oman, Bahrain, and Kuwait trail with 3.3%, 3.1%, and 2.5% respectively.

For context, global GDP growth is expected to hit just 3.1% in 2026, while the broader Middle East and North Africa region should see 3.6% growth. This makes the UAE's performance particularly strong.

**What's driving the UAE's growth?**

The country's National AI Strategy 2031 is paying off. Massive investments in digital infrastructure and AI integration are boosting productivity across sectors. The non-oil economy is becoming the main growth engine, which is exactly what the UAE's economic diversification plans aimed for.

Small and medium businesses are getting a boost too. Digital tools are helping them cut costs and compete better with larger companies. In the UAE, these smaller businesses already account for over 37% of retail spending, and there's room to grow in tech-based services.

**The inflation picture looks good**

Inflation should stay around 2% in Gulf countries, while oil-importing economies in the region will see it drop to an average of 6.7%. A weaker US dollar and lower energy prices are helping bring costs down.

This means central banks can likely cut interest rates, which reduces borrowing costs for businesses and consumers. Real estate, tourism, and retail sectors should benefit most from cheaper credit.

**Investment is reshaping the region**

Gulf countries are pouring money into renewable energy, construction, and technology. This is changing global supply chains and where capital flows. Oil-importing countries are also trying to attract foreign investment, especially in clean energy.

Trade patterns are shifting too. Over the past two decades, Middle East and North Africa countries have gradually moved away from trading mainly with developed economies. Now they're doing more business with other emerging markets in Europe, the Middle East, and Africa.

**But risks remain**

Khadija Haq, chief economist for Eastern Europe, Middle East and Africa at Mastercard Economics Institute, points out the challenges. Geopolitical tensions and climate-related issues could hurt investment and economic activity.

High tariffs globally also create headaches for trade. But the region's structural reforms and focus on non-oil sectors provide a buffer against these external shocks.

For investors and businesses, the UAE's strong growth forecast signals continued opportunities, especially in tech and services. The country's bet on AI and digital transformation appears to be working, setting it up as a regional leader in the post-oil economy.