UAE Macroeconomic Update – December 2024

The United Arab Emirates (UAE) is experiencing strong economic performance this year, thanks to rapid growth of the non-oil economy as well as a supportive policy environment, which have enabled key sectors to thrive despite external challenges. The economy grew by 3.9% in Q2 according to preliminary estimates, with non-oil sectors growing by 4.8%. Transport, construction, and financial services were the main drivers of growth. Meanwhile, inflation has declined to 1.7% in August, driven in part by declining transportation costs.

As for individual emirates, Abu Dhabi sustained its positive trajectory in Q2 2024, recording a GDP growth of 4.1% year-on-year to AED 297 billion. Non-oil sectors led this expansion, growing by 6.6% and contributing 55% to the GDP, indicating the emirate’s increasing economic diversification. The construction sector recorded a remarkable 11.5% growth, driven by ambitious infrastructure projects and urban development initiatives, reaching the highest share of GDP since 2015 at 9.3%. Notable contributions came from the finance and insurance sectors, which expanded by 13.4% in line with the rapid growth of the Abu Dhabi Global Market (ADGM), where assets under management increased by 215% over the past year leading up to Q3. Meanwhile, the oil sector grew by 1.1%, reflecting the country’s ongoing commitments to OPEC+ to moderate production levels this year.

Dubai’s economy also demonstrated robust growth during the second quarter of 2024, with GDP increasing by 3.3% year-on-year to AED 116 billion. This builds on a 3.2% rise in Q1, indicating continuing expansion. The emirate’s economic expansion was powered by strong performances in key sectors such as transportation and storage, which grew by 7.8%, helped by the rebound in air travel, with Dubai International Airport revising its 2024 forecast to a record-breaking 93 million passengers. The information and communication sector grew by 5.6%, reflecting the growing domestic population base. Accommodation and food services expanded by 4.7%, supported by a 9% year-on-year increase in international visitors during H1, reaching 9.3 million. Alongside these gains, inflation in the emirate decelerated to a 14-month low of 2.4% as of October 2024, driven by a steep deflation in transport prices.

Outlook

The UAE’s economic outlook remains optimistic, with the Central Bank of the UAE (CBUAE) forecasting GDP growth of 4% in 2024 and a stronger 6% in 2025 on the back of increased hydrocarbons production, though this figure does not reflect the recent extension of OPEC+ production cuts. Inflation is expected to remain moderate, with the CBUAE projecting rates of 2.2% for both 2024 and 2025. Fiscal policy will remain supportive, driven by an all-time high federal budget of AED 72 billion for 2025, complemented by spending plans such as Dubai’s AED 272 billion three-year budget for 2025–2027 and those of other emirates.

There are three main risks to the outlook. First, trade wars between China and the United States may weaken global economic growth and, by extension, oil demand, putting downward pressure on oil prices. Second, uncertainty around U.S. monetary policy is another key factor, as Donald Trump’s economic policies may prove inflationary. If this occurs, the Federal Reserve could slow or pause its monetary easing, which could impact capital inflows into the UAE. Lastly, regional geopolitics remains a persistent risk, particularly the potential escalation of the conflict in Gaza, which could impact trade and investor confidence in the region.

In conclusion, the UAE’s economy is well-positioned for sustained growth, supported by robust non-oil sector performance, supportive fiscal policies, and a commitment to economic diversification. While external risks remain a concern, the UAE’s solid fiscal position and ongoing diversification efforts provide resilience against potential economic disruptions.