The Central Bank of the United Arab Emirates (CBUAE) has revised its inflation forecast for 2024, citing lower-than-expected increases in commodity costs, incomes, and rents. The new forecast predicts an average inflation rate of 2.3%, down from the previously estimated 2.5%, according to the bank’s June 2024 Economic Quarterly Review.
Inflation Trends
In Dubai, headline inflation moderated to 3.4% in Q1 2024, below the global average. However, it rose to 3.9% in April, driven by significant increases in transport prices. Housing costs, including rent, water, electricity, gas, and other fuels, which represent 40.7% of the consumer basket, continued to climb, reaching 6.5% annually in April. Conversely, food and beverage inflation declined to 2.3% in April, down from an average of 3.3% in Q1 2024.
The central bank anticipates a similar inflation rate of 2.3% in 2025, largely driven by non-tradeable components of the consumer basket. This adjustment reflects a broader trend of moderated cost increases across various sectors of the economy.
Robust Economic Outlook
Despite the adjusted inflation forecast, the UAE’s economic outlook remains strong. The CBUAE maintains its projection for the country’s real GDP growth at 3.9% in 2024, expecting it to accelerate significantly to 6.2% in 2025. This growth is underpinned by strong performances in both the hydrocarbon and non-hydrocarbon sectors. Non-hydrocarbon GDP is expected to grow by 5.4% in 2024 and 5.3% in 2025, reflecting continued strength in sectors such as real estate, tourism, hospitality, and transportation. The hydrocarbon sector, which experienced marginal growth of 0.3% in 2024, is forecast to expand by a substantial 8.4% in 2025.
Economic Metrics
In Q4 2023, the UAE economy expanded by 4.3% year-on-year, surpassing the 2.5% growth recorded in the third quarter. This increase was driven by accelerated non-hydrocarbon growth and improved hydrocarbon sector performance, which together account for around 75% of the UAE’s GDP.
The CBUAE also reported a positive consolidated fiscal balance of AED 85.6 billion in 2023, equivalent to 4.5% of GDP. Despite a 13.9% decline in total revenue to AED 526.1 billion (27.9% of GDP), government expenditure rose by 3.1% to AED 440.5 billion (23.3% of GDP). The introduction of a corporate income tax is expected to further bolster the fiscal sector’s sustainability.
News Source: Gulf Business
