UAE: Central Bank Forecasts 5.2% Growth Rate for 2025

The UAE Central Bank expects the economy to grow by 5.2 percent in 2025, but they adjusted their forecast for 2024.

Their report for the last part of 2023 suggests that the economy will grow even faster next year, especially because of increased growth in the oil sector. In 2025, the oil sector is expected to grow by 6.2 percent, while the non-oil sector will likely grow by 4.7 percent.

In its Q4 2023 report, the Central Bank revised its projection for 2024, expecting real output growth to reach 4.2 percent, down from the previous estimate of 5.7 percent. This adjustment is attributed to a slower recovery in oil production following the OPEC+ agreement in November 2023, alongside a strong but diminishing growth in the non-oil sector. However, in December 2023, the Central Bank increased its GDP growth forecast for the UAE in 2024 to 5.7 percent, up from 4.3 percent, driven by an 8.1 percent growth in the oil GDP. The GDP growth estimates for 2023 remained unchanged at 3.1 percent in the Q4 2023 report, mainly due to the extension of oil production cuts until the end of 2023.

The regulator cautioned that the forecasts for 2024 and 2025 were uncertain, citing potential downside risks stemming from geopolitical tensions in the Red Sea, conflicts in Gaza, the Russia-Ukraine war, a global economic slowdown due to prolonged higher interest rates, and the potential for additional OPEC+ agreed reductions in oil output. However, it also noted potential upside risks, such as successful reform implementation and declining interest rates in advanced economies, which could bolster external demand and stimulate capital flows in emerging markets.

Oil output

Based on the OPEC+ agreements from November 2023 and March 2024, oil production is anticipated to remain low. However, starting from the fourth quarter of 2024, oil production is forecasted to resume per the group's agreement from June 2023. Consequently, oil GDP growth is expected to rebound to 2.9 percent in 2024, down from the previous projection of 8.1 percent, averaging 3 million barrels per day. In 2025, the Central Bank predicts further expansion in hydrocarbon output by 6.2 percent, maintaining the fourth-quarter 2024 production levels throughout the year.

The regulator anticipates inflation to rise to 2.5 percent this year, primarily driven by increased commodity prices like oil, wheat, and corn, alongside the anticipated depreciation of the US dollar. Despite this acceleration, inflation in the UAE remains notably lower than the global average. Capital Economics notes that the UAE boasts some of the lowest fiscal and external breakeven oil prices in the region. Even if oil prices decline, the UAE is expected to maintain twin surpluses, enabling loose fiscal policy. Furthermore, robust non-oil activity and a rebound in the real estate sector have alleviated concerns regarding corporate debts in Dubai.

News Source: Khaleej Times