The UAE could see real household consumption growth averaging 3.5% annually for the next six years, outpacing global peers, according to a recent report (pdf) from Oxford Economics. This is in line with other GCC countries including Kuwait and Qatar, while Saudi Arabia is set for a 3% growth rate during the next six years — giving the region an average growth rate of 3.4%, significantly outpacing the 1.7% growth expected in advanced economies.

Why does it matter? “The household sector and the prospects for consumers to outperform their international peers is important for the region's governments as they continue to focus their efforts to diversify activity away from oil and gas revenues,” the report read, adding that this is also “crucial for companies that are looking to invest in consumer-facing sectors.”

What’s behind the momentum? Rising living costs often weigh on economies, as households usually tighten their belts. However, inflation in the GCC — despite experiencing significant cost increases in recent years, especially during the pandemic — was less severe than elsewhere, according to the report. “This means that the erosion of GCC households' spending power was much lower than in advanced economies, helping to support strong consumption growth.”

Looking ahead, Oxford Economics expects inflation in the UAE to see a slight and moderate increase in 2026, before falling back in 2027 and beyond.

REFRESHER- In June, the Central Bank of the UAE (CBUAE) slightly lowered its 2025 inflation forecast for the UAE by a 0.1 percentage point to 1.9% — just below that of the IMF, which now expects inflation in the UAE to come in at 2.1% this year.

Falling unemployment also plays a role: Healthy labor markets are expected to boost household consumption growth in the region, with unemployment rates consistently falling across the GCC, after surging during the pandemic. This positive trend is supported by “removals of trading restrictions and buoyant domestic demand.”

Unemployment in the UAE is expected to rise in the country this year, though it will likely top out and be followed by a series of downturns in the years ahead, Oxford Economics said. As for the GCC countries, unemployment is expected to continue to decline.

Expanding credit access in the region is also helping drive household consumption, especially as GCC governments are now including non-citizens in their credit initiatives, which results in a significant increase in demand. Personal loans in the UAE have increased 17.8% y-o-y in the three months leading to April 2025, driven by the relaxation of lending standards for both citizens and expats in the country, according to the report.

REMEMBER- Credit demand growth in the UAE moderated on a q-o-q basis in 2Q 2025, but remained in the positive territory, largely supported by robust economic conditions, higher household incomes, and an encouraging investment climate. Meanwhile, financial institutions’ lending appetite was supported by a “solid economic outlook, strong competition from other banks and financial institutions, improving bank asset quality and stable borrower creditworthiness.”

Further interest rate cuts could boost demand further: Oxford Economics expects the US Federal Reserve to resume the easing cycle this month, projecting cumulative rate cuts of 125 bps by the end of 2026. GCC central banks are seen following suit by gradually lowering interest rates, providing an additional boost to domestic demand. Late in July, the CBUAE decided to hold interest rates steady for the fifth time in a row, following in the footsteps of the US Federal Reserve.

Risks ahead: Exposure to oil prices means that a deep downturn could affect consumer demand, though at the moment, it expects Brent crude to fall by 6% over the next four quarters before rebounding later. A 10% drop, however, would erode the level of real consumption by 0.74% per year, the report said.

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