IMF forecasts 4% growth for UAE economy in 2024

IMF Forecasts 4% GDP Growth for UAE in 2024 Amid Robust Domestic Activities and Oil Prices

RIYADH: The UAE’s gross domestic product (GDP) is poised to expand by 4 percent this year, buoyed by robust domestic activities and relatively high oil prices, according to a forecast by the International Monetary Fund (IMF).

In its latest Article IV end-of-mission statement, the IMF observed that the Emirates is witnessing robust growth across various domestic sectors, notably tourism, construction, and financial services. This growth momentum is underpinned by strong consumer demand, increased government spending on infrastructure projects, and ongoing diversification efforts aimed at reducing reliance on oil revenues.

The report also highlighted that the UAE’s oil GDP is expected to grow this year if the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, opt to relax previously proposed output cuts. This projection underscores the significant role of the energy sector in driving economic growth in the UAE, despite ongoing efforts to diversify the economy.

“Economic growth in the UAE is broad-based, led by robust activity in the tourism, construction, manufacturing, and financial services sectors. Foreign demand for real estate, increased bilateral and multilateral ties, and the UAE’s safe haven status continue to drive rapid growth in housing prices and an increase in rents while adding to ample domestic liquidity,” stated the IMF in its statement. This acknowledgment highlights the multifaceted nature of the UAE’s economic expansion and its attractiveness to international investors.

In its earlier projection in April, the organization had anticipated a 3.5 percent growth rate for the UAE’s economy in 2024. The upward revision to 4 percent reflects the resilience and adaptability of the UAE’s economy, despite global economic uncertainties and regional challenges.

The UN financial agency further indicated that the impact of geopolitical tensions in the Emirates remains minimal thus far, with the country demonstrating a rapid and effective response to recent flooding incidents. This resilience underscores the UAE’s proactive approach to managing both internal and external risks, contributing to its reputation as a stable and reliable business environment.

IMF also pointed out that the inflation rate in the UAE is forecasted to be contained at 2 percent in 2024, indicating stable price levels and ensuring purchasing power for consumers and businesses alike.

According to the study, the UAE’s fiscal and external surpluses are expected to remain high this year owing to the surge in oil prices. This surplus provides the government with fiscal flexibility to invest in strategic sectors, enhance social welfare programs, and further diversify the economy.

“The general government surplus is projected to be around 5 percent of GDP in 2024, and public debt is on track to decline further toward 30 percent of GDP, benefitting from active debt management strategies,” remarked IMF. This prudent fiscal management reflects the UAE’s commitment to long-term fiscal sustainability and economic resilience.

It further added: “Capital spending is expected to meet ongoing infrastructure needs, and the introduction of the corporate income tax will support non-hydrocarbon revenue with its full implementation in the coming years. The current account surplus is projected at around 9 percent of GDP in 2024.” These measures signal the government’s proactive approach to enhancing revenue streams and reducing dependency on oil revenues, thereby strengthening the overall economic outlook.

The international financial institution also suggested that accelerated public and private investment, coupled with structural reforms in sectors like renewable energy and technology, could foster even greater economic growth in the Emirates. This recommendation underscores the importance of ongoing efforts to enhance productivity, promote innovation, and create a more diversified and resilient economy.

Nevertheless, the IMF cautioned that the UAE’s economic outlook remains subject to uncertainty and external risks, including geopolitical tensions, global economic growth, and commodity price fluctuations. These factors highlight the need for continued vigilance and adaptive policymaking to mitigate potential risks and capitalize on emerging opportunities.

The study emphasized that banks in the Emirates maintain substantial capital and liquidity buffers, with resilient credit growth despite higher domestic interest rates. This resilience reflects the soundness of the UAE’s banking sector and its ability to support economic activity even in challenging environments.

“The efforts to digitalize the financial system and payment landscape are welcome and should continue to follow a risk-conscious approach. Initiatives to develop and regulate the virtual asset industry should be informed by a careful assessment of macroeconomic and financial stability risks,” advised the IMF. This recommendation underscores the importance of embracing financial innovation while ensuring regulatory oversight to safeguard financial stability and consumer protection.

The report underlined that gradual fiscal consolidation and further structural reforms will underpin the UAE’s economic prudence and medium-term sustainability. These measures will be essential for navigating future challenges, fostering inclusive growth, and enhancing the UAE’s position as a leading global economy.