UAE economy to grow at 4% in 2025: IMF

The UAE economic growth is expected to remain healthy at around 4 percent while fiscal surplus is expected to decline to 4 percent of GDP this year from an estimated 5 percent of GDP last year, the International Monetary Fund said.

This is slightly lower than the projections made by the Central Bank of the UAE (CBUAE) which last month projected the UAE’s real GDP growth for 2024 at 4.0 percent, accelerating to 4.5 and 5.5 percent in 2025 and 2026, respectively.

According to the Quarterly Economic Review issued on December 23, 2024, the CBUAE said, “Growth expectations for the 2024 are driven by growth in the tourism, transportation, financial and insurance services, construction and real estate, as well as communication sectors.”

Strong economic growth continues, underpinned by robust domestic activity, although the outlook is subject to heightened global uncertainty, ongoing reform efforts are expected to support medium-term growth and energy transition, International Monetary Fund (IMF) said following the conclusion of a visit to the UAE by its team to assess the country’s economy

“Near-term growth is strong and expected to remain healthy at around 4 percent in 2025, despite lower-than-expected oil production related to OPEC+ agreements. Non-hydrocarbon activity is boosted by tourism, construction, public expenditure, and continued growth in financial services,” Ali Al-Eyd, head of the visiting IMF team said in a statement following the visit.

“Capital inflows remain strong, attracted by social and business-friendly reforms, and contribute to ongoing demand for real estate, which is driving further growth in house prices across different segments and locations. Hydrocarbon GDP is expected to grow above 2.0 percent this year, following OPEC+ decisions to sustain production cuts, and as the UAE implements a more gradual OPEC+ quota increase. Inflation is expected to remain contained around 2.0 percent in 2025 despite higher housing and utilities-related costs.”

A staff team from the IMF, led by Ali Al-Eyd, visited the UAE from January 14–22, 2025, to discuss economic and financial developments, the outlook and the country’s policy and reform priorities.

“Hydrocarbon revenue is expected to decline amid volatile oil prices and reduced oil production, but fiscal and external surpluses are projected to remain comfortable. The fiscal surplus is expected to moderate to around 4 percent of GDP in 2025 from an estimated 5 percent of GDP last year. However, non-hydrocarbon revenue is projected to increase steadily in the coming years with the ongoing implementation of the corporate income tax. Public debt remains contained at around 30 percent of GDP. The current account surplus is projected at around 7.5 percent of GDP, while international reserves are healthy at over 8.5 months of imports,” the statement said.

UAE banks remain adequately capitalised and liquid overall, while asset quality further improved in 2024. Robust domestic activity and resilient demand for credit has supported banks’ profitability amid still-elevated interest rates. Banks’ exposure to the real estate sector has declined by 4 percentage points to 19.6 during the period December 2021 to September 2024, and risks associated with continued increasing house prices should continue to be closely monitored, it said.

Ongoing improvements to the AML/CFT framework and progress under the Financial Stability Council are welcome and should be continued. Regulation and supervision of crypto-related activities should evolve in line with market developments, IMF suggested. It also welcomed greater transparency and communication on the monetary framework and operations, which supports liquidity management and local capital market development.

“The outlook remains subject to heightened global uncertainty. Turbulent external conditions, including resulting from geopolitical and policy uncertainties, could tighten global financial conditions, weaken global growth, and increase oil price volatility, impacting UAE fiscal and external balances and raising risks to domestic activity and financial markets. However, substantial financial buffers help mitigate short-term risks, while ongoing reforms and large investment in infrastructure and AI should lift productivity, posing upside medium-term growth risks,” the statement said.

“UAE reform efforts continue to support medium-term growth and a smooth energy transition, with prioritization and sequencing key to ensure effective outcomes. Ongoing infrastructure investments should enhance tourism and domestic activity, while ongoing trade liberalisation, underpinned by Comprehensive Economic Partnership Agreements, should further boost trade and FDI.”

Advancing a medium-term fiscal framework would ensure a coordinated national fiscal stance, promote long-term sustainability, and help meet climate change-related challenges. Continued progress in improving economic data collection and dissemination will reinforce these efforts, it said.

According to the CBUAE, non-oil GDP growth accelerated to 4.8 percent year-on-year (YoY) in Q2 2024, up from 4.0 percent YoY in the previous quarter, mainly due to the faster growth in manufacturing, trade, transportation and storage, and real estate activities.

“Non-oil GDP growth is expected to remain strong at 4.9 percent in 2024 and 5.0 percent in 2025, resulting mainly from the strategic plans and policies implemented by the government to attract foreign investments and promote economic diversification. The 16 non-oil sectors continued their steady growth pattern in Q3 2024. Wholesale and retail trade, manufacturing and construction continued to be some of the backbones of the growth in the non-oil sector,” it said.

“The comprehensive economic partnership agreements (CEPA) signed by the UAE with many countries have also strengthened its trade partnerships. As a result, the UAE’s non-oil trade exceeded Dh1.3 trillion in H1 2024, equivalent to 134 percent of the country’s GDP, representing a 10.6 percent YoY increase, and reflecting a successful implementation of the plan to diversify the UAE economy and strengthen ties with key trading partners.”

In the first 10 months of 2024, oil production averaged 2.9 million barrels per day, and is expected to grow by 1.3 percent in 2024, accelerating to 2.9 percent in 2025.