UAE – Mubasher: Near-term growth of the UAE is strong and expected to remain healthy at around 4% in 2025, despite lower-than-expected oil production related to OPEC+ agreements, according to a statement by the International Monetary Fund (IMF).
The IMF staff team was led by Ali Al-Eyd who visited the UAE from 14-22 January 2025 to discuss economic and financial developments, the outlook, and the country’s policy and reform priorities.
Al-Eyd stated that non-hydrocarbon activity is boosted by tourism, construction, public expenditure, and continued growth in financial services.
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% 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 at around 2% in 2025 despite higher housing and utilities-related costs.
Meanwhile, 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% of GDP in 2025 from an estimated 5% 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% of GDP. The current account surplus is projected at around 7.5% of GDP, while international reserves are healthy at over 8.5 months of imports.
Banking Sector in UAE
Al-Eyd noted that banks remain adequately capitalised and liquid overall, while asset quality further improved in 2024.
Robust domestic activity and resilient demand for credit have 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.
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.
Outlook
Al-Eyd further stated that 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 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 liberalization, 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 is worth noting that Emirates NBD Research recently expected the headline UAE GDP growth to hit 5% in 2025.
In addition, it summarised the top MENA countries in terms of the Purchasing Managers’ Index (PMI) data, which showed that the S&P Global PMI survey for the UAE ended 2024 on a high note.
