The UAE Central Bank has projected a 5.2 per cent GDP growth forecast for 2025 but revised down projection for 2024.
According to the fourth-quarter 2023 report, the economy is projected to grow faster next year on the back of higher growth in the hydrocarbon sector.
The UAE’s economy will be driven mainly by the oil sector with 6.2 per cent growth followed by the non-oil sector at 4.7 per cent in 2025.
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“For 2024, the Central Bank projects real output growth to rebound to 4.2 per cent, a downgrade from 5.7 per cent previously projected. The revision is due to a slower recovery in oil production in light of the Opec+ agreement in November 2023, and a robust yet declining growth in the non-oil sector,” it said in Q4 2023 report.
In December 2023, the Central Bank raised its forecast for GDP growth for the UAE for 2024 to 5.7 per cent, up from 4.3 per cent, on the back of 8.1 per cent growth in the oil GDP.
It maintained GDP growth estimates for 2023 at 3.1 per cent in the Q4 2023 report, largely reflecting the extension of oil production cuts which lasted until the end of 2023.
The regulator said the forecasts for 2024 and 2025 remained subject to significant uncertainty with downside risks due to geopolitical tensions around Red Sea disruptions, conflicts in Gaza, war between Russia and Ukraine, a global slowdown triggered by the need to hold higher interest rates for longer, as well as the possibility of further Opec+ agreed reductions in oil output.
“On the other hand, successful reform implementation and decline in interest rates in advanced economies that could boost external demand and trigger capital flows in emerging markets pose upside risks to growth,” it said.
Oil output
Based on the November 2023 and March 2024 Opec+ agreements, production is projected to remain subdued while starting from the fourth quarter of 2024, oil production is expected to resume in line with the group’s agreement of June 2023, it said.
As a result, oil GDP growth is forecasted to rebound to 2.9 per cent in 2024, down from the previously projected 8.1 per cent, corresponding to an average of 3 million barrels per day. In 2025, the Central Bank expects hydrocarbon output to further expand by 6.2 per cent, continuing with the fourth quarter of 2024 production levels for the entire year.
The regulator projected inflation to accelerate to 2.5 per cent this year, but still significantly below the world average due to higher commodity prices such as oil, wheat and corn and the expected depreciation of the US dollar.
According to Capital Economics, the UAE has among the lowest fiscal and external breakeven oil prices in the region. “Even if, we expect, prices slide back, the UAE will still run twin surpluses, allowing fiscal policy to be kept loose. Meanwhile, strong non-oil activity and a recovery in the real estate sector has helped to ease concerns over corporate debts in Dubai,” Capital Economics said.