A faster growing oil and gas sector in 2025 will boost growth in the UAE, says a report
Economic growth in the UAE is expected to accelerate to 6.2 per cent in 2025, according to the country’s central bank.
In its latest June 2024 Economic Quarterly Review, the Central Bank of the United Arab Emirates (CBUAE) projects that healthy foreign trade flows will buoy the UAE’s real GDP expansion during 2024 and 2025.
“The CBUAE projects GDP growth for 2024 at 3.9 per cent, largely reflecting the strong performance of the non-oil sector. Growth forecasts are driven mainly by tourism, transportation, financial and insurance services, construction and real estate, and communications sectors; while the extension of oil production cuts during 2024 partially moderate the overall growth,” said the CBUAE in its latest review.
“For 2025, growth is expected to increase to 6.2 per cent as trends in the non-hydrocarbon sector are expected to continue, while oil and gas production are forecasted to pick up significantly,” noted the central bank.
As part of its note, the CBUAE highlights uncertainties and downside risks that could put a dampener on these projections. These include escalating geopolitical tensions, a global slowdown caused by prolonged high interest rates, and possible oil production cuts by OPEC+.
But the central bank adds that a potential reduction in interest rates in advanced economies could also help “boost external demand and encourage capital inflows into emerging markets”.
Hydrocarbons impact on UAE
The report further indicates that non-oil GDP growth is expected to be 5.4 per cent in 2024 and 5.3 per cent in 2025. This comes after non-hydrocarbon growth accelerated to 6.7 per cent year-on-year in the fourth quarter of 2023, up from 5.8 per cent year-on-year growth in the previous quarter.
Financial and insurance services, real estate activities, construction and manufacturing were key growth drivers last year, notes the CBUAE.
Meanwhile, the central bank says that hydrocarbon growth is expected to be muted in 2024 and that it is set to pick up next year, helping to lift overall growth.
“In the first four months of 2024, oil production averaged 2.9 million barrels per day marking a 4 per cent decline compared to the same period a year ago and is expected to remain at this level until the end of 2024. Gas production increased by 14.3 per cent year-on-year in Q1 2024 offsetting the decline in oil production. Based on the historical performance year-to-date in 2024 and [on the] OPEC+ meeting decision on production in June 2024, [the] hydrocarbon sector is set to grow by 0.3 per cent in 2024, followed by further expansion by 8.4 per cent in 2025,” said the CBUAE.
Signs of expansion in UAE
Other key indicators, including the Purchase Managers Index (PMI), further point to growth in the UAE economy
As of April 2024, the UAE’s Purchasing Managers’ Index (PMI) was reported at 55.3. A PMI of over 50 indicates an expansionary environment.
The CBUAE said this latest PMI figure is driven by continued business optimism and the “expectation of ongoing robust demand and sales”.
Strong wage growth is also adding a tailwind to the Emirates’ economy.
“[The] number of employees covered by the CBUAE Wage Protection System (WPS), and average employee salary increased by 7.5 per cent and 9.4 per cent year-on-year in April 2024, respectively. These positive readings for employment and wage growth point to robust domestic consumption and sustainable GDP growth going forward,” the CBUAE said.
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