UAE to Drive Gulf Economic Growth in 2025, Says Capital Economics

UAE Set to Lead Gulf Economic Growth in 2025, Says Capital Economics

The United Arab Emirates (UAE) will retain its status as the fastest-growing economy in the Gulf region in 2025, Capital Economics said. It is driven by a vibrant non-oil sector and stable oil production. The country’s economic resilience is underpinned by strong private sector credit growth, a growing financial sector and record tourism figures.

Stable Oil Production and Anticipated Growth

The UAE is expected to benefit economically in the second half of 2024, even though it has complied with OPEC+ agreements and maintained oil production at 2.9 million barrels per day (bpd) in January and February. The UAE is expected to benefit from OPEC+’s scheduled production increase beginning on April 1, with projections indicating a 7% increase in UAE’s oil output to 3.1 million bpd by the end of 2025.

Non-Oil Sector as Key Economic Driver

Private sector loan growth accelerated from 7.5% year-over-year in November 2023 to 8.0% in December, demonstrating that the UAE’s non-oil economy remains the foundation of its expansion. The main reason for this increase is a reflection of rising consumer confidence and spending.

The UAE’s position as a major international business hub was further cemented when the Dubai International Financial Centre (DIFC) recorded its highest number of new company registrations in 2024. Increased economic activity was evidenced by the 28.3% occupancy rate of public parking.

Tourism and retail sectors are booming

With foreign visitor arrivals reaching 18.7 million in 2024, Dubai continues to cement its position as a leading global destination. The real estate, retail and hospitality sectors are expected to benefit even more from this upward trend through 2025.

Challenges and Economic Outlook

The UAE economy is still growing, but some signs point to the possibility of a slowdown. The February 2024 Purchasing Managers’ Index (PMI) surveys indicate that non-oil GDP growth slowed slightly in the first quarter. In addition, tighter monetary policies could pose challenges to credit expansion in the coming years. However, the UAE’s fiscal policy is expected to remain accommodative, supported by a sizeable budget surplus.

Inflation, which peaked at 1.8% in 2024, is expected to decline to 1.5% in 2025, supporting consumer spending and boosting household incomes.

Growth outlook for 2025

The UAE will continue to lead the growth of Gulf economies, with the capital economy forecast to increase its GDP growth from 4.0% in 2024 to 4.5% in 2025. With its strong fiscal support, robust infrastructure and thriving non-oil economy, the UAE is well positioned to maintain its economic momentum and drive regional growth in the coming year.