The International Monetary Fund has predicted that the UAE’s near-term economic growth will stay robust at approximately 4 percent in 2025, despite lower-than-anticipated oil production linked to OPEC+ agreements. This insight was shared in a statement released by the IMF following a staff visit to the UAE, during which they discussed economic and financial developments, the outlook, and the country’s strategic policy and reform priorities.
Near-term growth remains strong
“Near-term growth is strong and expected to remain healthy at around 4 percent in 2025, despite lower-than-expected oil production related to OPEC+ agreements. Non-hydrocarbon activity is boosted by tourism, construction, public expenditure, and continued growth in financial services. Capital inflows remain strong, attracted by social and business-friendly reforms, and contribute to ongoing demand for real estate, which is driving further growth in house prices across different segments and locations. Hydrocarbon GDP is expected to grow above 2.0 percent this year, following OPEC+ decisions to sustain production cuts, and as the UAE implements a more gradual OPEC+ quota increase. Inflation is expected to remain contained around 2.0 percent in 2025 despite higher housing and utilities-related costs,” reads the statement.
Fiscal and external surpluses projected
The statement anticipated that hydrocarbon revenue would decline amid fluctuating oil prices and decreased oil production, “but fiscal and external surpluses are projected to remain comfortable. The fiscal surplus is expected to moderate to around 4 percent of GDP in 2025 from an estimated 5 percent of GDP last year. However, non-hydrocarbon revenue is projected to increase steadily in the coming years with the ongoing implementation of the corporate income tax. Public debt remains contained at around 30 percent of GDP. The current account surplus is projected at around 7.5 percent of GDP, while international reserves are healthy at over 8.5 months of imports.”
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Banks remain adequately capitalised
The IMF expects UAE banks to maintain adequate capitalisation and liquidity overall, “while asset quality further improved in 2024. Robust domestic activity and resilient demand for credit have supported banks’ profitability amid still-elevated interest rates.”
Exposure to real estate sector declines
The Fund noted that the UAE banks’ exposure to the real estate sector has decreased by 4 percentage points to 19.6 during the period from December 2021 to September 2024, and risks associated with the ongoing rise in house prices should continue to be closely monitored.
Reform efforts support medium-term growth
The IMF commended the UAE’s reform initiatives as beneficial for medium-term growth and a smooth energy transition, emphasizing that prioritization and sequencing are crucial to ensure effective results. “Ongoing infrastructure investments should enhance tourism and domestic activity, while ongoing trade liberalisation, underpinned by Comprehensive Economic Partnership Agreements, should further boost trade and FDI. Advancing a medium-term fiscal framework would ensure a coordinated national fiscal stance, promote long-term sustainability, and help meet climate change-related challenges. Continued progress in improving economic data collection and dissemination will reinforce these efforts.”
