Capital Economics sees the UAE’s GDP growing to 4.5% in 2025

Capital Economics sees the UAE retaining its position as the fastest growing economy in the Gulf in 2025, expecting GDP growth to accelerate to 4.5% this year — up from 4.0% in 2024, Capital Economics’ James Swanston, Middle East and North Africa economist said in a research note seen by EnterpriseAM UAE. GDP growth will be driven by “a combination of stronger oil output and a thriving non-oil economy,” Swanston wrote.

On the oil front, the UAE is expected to be the “major beneficiary” of Opec+’s decision to raise oil output starting 1 April, as it will allow the country to “take advantage of its twice-raised base quota.” This is expected to raise production by 7.0% to 3.1 mn bpd by the end of 2025, boosting oil GDP by the end of the year. The UAE had kept production levels unchanged at around 2.9 mn barrels a day over the first couple of months of the year, which is expected to weigh on oil GDP growth in 1Q 2025.

REMEMBER- The UAE is set to see a higher production quota of 3.5 mn barrels per day in 2025, up from the current 2.9 mn, after the oil cartel agreed to raise its production quota last year.

The UAE’s non-oil economy is expected to experience some “headwinds” due to a tighter monetary policy, a situation expected to last over the next couple of years — thereby potentially slowing down business activity. However, credit demand in the UAE “remains solid,” while fiscal policy is expected to remain supportive due to the UAE’s strong budget surplus, which is expected to remain solid despite lower prices. This, coupled with expectations of a strong performance in the tourism, retail trade, and real estate sectors is expected to keep non-oil activity solid throughout the year.

Inflation may have already peaked: The agency sees inflation slowing to 1.5% this year, down from 1.8% in 2024, which will “soften the pinch on household incomes,” according to the note.

How CE’s growth projection compares to others: The forecast is on the optimistic end of the spectrum, only a couple of percentage points below that of the Central Bank of the UAE (CBUAE), which it upgraded to 4.7% earlier this month. S&P Global and Fitch Solutions’ research unit BMI are the most optimistic of the bunch, expecting the UAE’s real GDP to grow by 5.1% this year. On the lower end, the International Monetary Fund and the World Bank revised their forecasts for the UAE’s economy this year to 4.0%.

ALSO- S&P Global Market Intelligence sees the UAE’s non-oil economy growing 5.2% this year, driven by strong performances from the tourism, real estate, and finance sectors, among others, S&P Global Head of Middle East and Northern Africa Economics Ralf Wiegert told Khaleej Times. “Real estate will likely continue to grow and remain one of the key growth drivers in 2025. We haven’t seen signals that would point to an imminent downturn of the market, which leads us to anticipate further growth of Dubai's and, to a lesser extent, UAE's real estate market in 2025,” Wiegert is quoted as saying.

This would represent a slight slowdown from last year, when the UAE’s non-oil GDP grew by 5.4%. However, this is still a less significant slowdown than others are predicting, with both credit ratings agency Moody’s and Emirates NBD predicting non-oil growth slowing to 5.0% in 2025, while the Central Bank of the UAE (CBUAE) expects non-oil GDP to come in at 5.1% this year.