UAE Central Bank revises up its 2024 GDP growth forecast to 4% on non-oil sector boost

Expansion supported by the country's global economic agreements, regulator says

In Abu Dhabi, real estate sales transactions in January-June period rose 2.3 per cent on a yearly basis. Khushnum Bhandari / The National

The UAE Central Bank now expects the country's economy to expand by 4 per cent this year, an increase from its June estimate of 3.9 per cent, on the back of a boost from its non-oil sector as the Emirates moves forward with its diversification strategy.

Growth will also be supported by global economic agreements, the regulator said in its quarterly economic review report on Wednesday.

The Arab world’s second-largest economy reported a record Dh1.4 trillion ($381.5 billion) in non-oil foreign trade in the first six months of this year, according to official figures.

That comes after the UAE signed comprehensive economic partnership agreements (Cepas) with rapidly growing economies in Asia, the Middle East and Africa, including with India, Turkey, Israel, Indonesia, Cambodia, Georgia, South Korea, Chile and Mauritius.

Cepas aim to reduce tariffs and remove bottlenecks that hamper trade. This programme is projected to increase the national exports by 33 per cent and add more than Dh153 billion to the economy by 2031.

The UAE has been focused on diversifying its economy from oil, with non-oil sector growth picking up significantly in recent quarters. In the first quarter, the country's economy expanded by 3.4 per cent, with real GDP reaching Dh430 billion, the Ministry of Economy said this month. The non-oil sector expanded by 4 per cent year on year during the quarter.

In the first half of the year, the transport and tourism sectors grew strongly, with tourist arrivals surging by 14.2 per cent, the Central Bank report said. Passenger traffic at Abu Dhabi and Dubai international airports also rose by 33.8 per cent and 8 per cent, respectively, during the period.

The real estate sector also recorded robust activity, with residential sales transactions in Dubai in the first half of 2024 increasing by 34.8 per cent. In Abu Dhabi, sales transactions in the January-June period grew 2.3 per cent on a yearly basis.

The boost to the GDP this year also reflects the "improved performance of the oil sector", but growth forecasts continue to be "driven by tourism, transportation, financial and insurance services, construction and real estate, and communications sectors", the regulator said.

While Opec+ decisions on production quotas amid global uncertainties will influence overall growth, the non-hydrocarbon sector remains robust and is projected to grow 5.2 per cent and 5.3 per cent in 2024 and 2025, respectively, the Central Bank said.

Overall, for 2025, the regulator revised down its economic growth forecast to 6 per cent, compared with 6.2 per cent earlier.

The Opec+ group has now extended production cuts until the end of 2025 amid the drop in oil prices on concerns of sluggish demand. On June 2, the oil bloc agreed to extend output cuts of 3.66 million barrels per day, which were initially planned to end this year, until the end of next year.

Meanwhile, the additional 2.2 million bpd voluntary production cuts of eight Opec+ member states were extended by three months until the end of September.

The UAE Central Bank also warned of potential risks to economic growth in 2024 and 2025. “We see risks from escalation of some of the current geopolitical tensions or eruption of new ones [including the Russia-Ukraine conflict, the war in Gaza, and the disturbances in the Red Sea] … from a global economic deceleration resulting from the extensive period of high interest rates and from potential further oil production cuts by Opec+,” the report said.

The regulator also revised its inflation forecast for the UAE to 2.2 per cent, from 2.3 per cent for 2024. Inflation forecasts may be revised downward if disinflationary trends in food, beverages, and key non-tradable components continue to persist, it said.

Inflation is projected to stay at 2.2 per cent next year, primarily influenced by “non-tradable components and exchange rate behaviour of the US dollar”. Non-tradable components refer to goods and services that are consumed domestically, such as housing, healthcare, utilities and education.