The United Arab Emirates (UAE) economy is forecast to grow at a robust pace of approximately 4% in 2025, according to the International Monetary Fund (IMF). This growth projection remains strong despite reduced oil production as part of the OPEC+ agreements. The IMF shared these insights following the conclusion of its recent mission to the UAE, where it examined the country’s economic and financial landscape, outlook, and strategic policy priorities.
Strong Near-Term Growth and Economic Drivers
The IMF highlighted that the UAE’s near-term economic growth is solid, with non-hydrocarbon sectors playing a pivotal role. Key contributors to this growth include tourism, construction, increased public expenditure, and sustained expansion in financial services. These sectors are driving economic activity, supported by favorable reforms that attract capital inflows and bolster demand in the real estate market. This, in turn, has led to an upward trend in property prices across various segments and locations.
In terms of hydrocarbon GDP, the IMF projects growth of over 2% this year, primarily reflecting the UAE’s adherence to OPEC+ production cuts and the gradual implementation of increased quotas under the agreement.
Inflation, Fiscal Stability, and Revenue Outlook
Despite rising housing and utility costs, inflation is expected to remain stable, averaging around 2% in 2025. However, the IMF anticipates a decline in hydrocarbon revenues due to fluctuating oil prices and reduced output. Nevertheless, fiscal and external surpluses are projected to stay robust, with a fiscal surplus moderating to about 4% of GDP in 2025, compared to an estimated 5% in the previous year.
The IMF expects non-hydrocarbon revenues to grow steadily, driven by the introduction and continued implementation of corporate income tax. Meanwhile, public debt is forecast to remain manageable, at around 30% of GDP, while the current account surplus is projected to hover near 7.5% of GDP. Additionally, the UAE’s international reserves are reported to be healthy, exceeding the equivalent of 8.5 months of imports.
Banking Sector and Real Estate Market Resilience
The UAE’s banking sector is described as well-capitalized and liquid, with improved asset quality recorded in 2024. The IMF observed that robust domestic activity and resilient demand for credit have supported banks’ profitability, even in the context of persistently high-interest rates.
Notably, UAE banks have reduced their exposure to the real estate sector, with such exposure declining by 4 percentage points to 19.6% between December 2021 and September 2024. However, the IMF emphasized the importance of closely monitoring risks associated with rising property prices to ensure financial stability.
Reform Initiatives and Medium-Term Growth Prospects
The IMF commended the UAE’s ongoing reforms, which are seen as instrumental in supporting sustainable medium-term growth and facilitating the energy transition. Infrastructure investments are expected to boost tourism and domestic economic activity, while trade liberalization efforts, underpinned by the UAE’s Comprehensive Economic Partnership Agreements (CEPAs), are likely to enhance trade and foreign direct investment (FDI).
The Fund recommended the advancement of a medium-term fiscal framework to promote a coordinated national fiscal policy, ensure long-term sustainability, and address climate change challenges effectively. Additionally, the IMF highlighted the importance of further improving economic data collection and dissemination to support these initiatives and enhance policy-making.
Source: https://www.arabianbusiness.com/politics-economics/uae-economy-to-grow-4-this-year-imf
