UAE’s growth forecast: Strong and steady at 4 percent in 2025, says IMF

The International Monetary Fund (IMF) predicts that despite oil production being lower than expected due to OPEC+ agreement restrictions, the UAE's near-term economic growth will remain strong, projected at around 4% in 2025. This view was presented 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.

The statement noted: “Near-term growth is robust, despite lower than expected oil production due to the OPEC+ agreement, and is projected to remain healthy at around 4 percent in 2025. Non-hydrocarbon activity is boosted by continued growth in tourism, construction, public spending, and financial services. Social and business-friendly reforms have attracted strong capital inflows and have driven continued increases in real estate demand, leading to further price increases across different segments and regions. Hydrocarbon GDP is expected to grow by over 2 percent this year, as OPEC+ decides to maintain production cuts, and the UAE gradually implements OPEC+ quota increases. Inflation is projected to remain around 2 percent in 2025, despite higher housing and utility related costs.”

The statement forecasts that hydrocarbon revenues will decrease due to volatile oil prices and declining oil production, "but fiscal and external surpluses are expected to remain ample. The fiscal surplus is projected to decline from around 5 percent of GDP last year to around 4 percent of GDP in 2025. However, with the continued implementation of corporate income tax, non-hydrocarbon revenues are expected to steadily increase in the coming years. 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 remain at a healthy level of over 8.5 months of imports."

The IMF expects that UAE banks will maintain ample capital and liquidity, "while asset quality further improves in 2024. Strong domestic activity and credit demand are supporting banks’ profitability in the context of still high interest rates." The Fund noted that UAE banks’ exposure to the real estate sector decreased by 4 percentage points from December 2021 to September 2024, to 19.6%, and stressed that risks associated with continued increases in house prices should continue to be closely monitored.

The IMF praised the UAE's reform initiatives, deeming them beneficial for medium-term growth and a smooth energy transition, and emphasized that prioritization and sequencing are crucial to ensure effective results. "Continued infrastructure investment should strengthen tourism and domestic activity, while continued trade liberalization based on Comprehensive Economic Partnership Agreements should further boost trade and foreign direct investment. Advancing a medium-term fiscal framework will ensure a coherent national fiscal stance, promote long-term sustainability, and help address climate change related challenges. Continued progress in improving economic data collection and dissemination will strengthen these efforts."