KUWAIT: The UAE’s economic outlook for 2025 is positive, supported by ongoing infrastructure development plans including to raise oil and gas production capacity, a still-buoyant real estate and construction sector and surging tourism. The rollout of various economic initiatives and strategies over the past three years, including foreign ownership and visa reforms, have transformed the UAE into a major recipient of FDI inflows, ranking first among the MENA countries in 2023 according UNCTAD, while doubling the number of registered companies to more than a million since 2020. Moreover, helped by a growing network of trade agreements, external trade grew by 21 percent in 2021-2023, exceeding the 8.5 percent yearly growth target of the authorities’ 2031 “We the UAE” vision.

The non-oil economy is expected to see another year of 4 percent+ growth in 2025. The robust expansion in private credit recorded in 2024 (+6.9 percent y/y in June) and higher investment inflows, which have partly been channeled through the financial and real estate markets – the Dubai equity market was up 8.5 percent in Q1-Q3 2024 while Dubai real estate sales rose 30 percent y/y – are likely to be key drivers of domestic demand in 2025 as well. Looser monetary policy, relatively low inflation and a rising population should also be supportive of consumer activity over the forecast period.

The oil sector is poised to rebound in 2025 (+7.8 percent) after lackluster growth in 2024 (+0.4 percent), as OPEC+ commences unwinding its production cuts from December 2024. Output should reach 3.4 mb/d by end-2025. At the rate that state-owned ADNOC and its partners are ramping up $30 billion of upstream oil and gas projects (MEED estimates), the UAE is likely to reach its 5 mb/d production capacity target one year early, in 2026. In sum, total GDP growth could accelerate to 5.1 percent in 2025 from an expected 3.3 percent this year. Robust as this is, however, it is still below the 7.2 percent annual average growth rate the government requires to achieve vision 2031 target of a doubling in GDP by 2031.

Property market

Real estate market strength has persisted due to the influx of expatriate workers and foreign investment, given its status as a safe haven for funds. Dubai real estate sales reached AED 375 billion ($102 billion) in Q1-Q3 2024 (+30 percent y/y), easing from the 62 percent y/y seen in the same period of 2023. A further easing from these exceptional rates is seen through 2025, while growth in real estate prices for 2025 should also moderate (currently +20 percent y/y in Dubai; +8 percent in Abu Dhabi Jan-Sep 2024), helped by increased unit supply.

However, interest rate cuts should stimulate demand further, especially luxury apartments given their relatively lower valuations and potential for higher returns. Meanwhile, consumer price inflation is expected to edge slightly higher from 2.2 percent (average) this year to 2.4 percent in 2025 – still low against a backdrop of robust economic growth.

We see scope for rising supply to cap growth in housing rents following the strong performance witnessed this year (+6.5 percent y/y Jan-Aug in Dubai), while transportation costs would decline due to lower fuel prices in 2025 given our projection of lower oil prices.

Fiscal surplus to narrow

The government’s fiscal position remains solid compared to some GCC peers, but continued high outlays and lower oil prices over the forecast period will see the surplus narrow from 3.1 percent this year to 1 percent of GDP in 2025. The federal UAE and Dubai budgets earmark higher spending allocations for 2025 (+11.5 percent budget-on-budget to AED 72 billion and +5.8 percent to AED 84 billion, respectively), a sign of intent for the authorities as they proceed with ambitious investment and infrastructure plans.

Government debt will continue to fall over the forecast period, from 31 percent of GDP in 2023, according to the IMF, to 27 percent of GDP by end-2025. The moderate government debt level, strong net external asset position (ADIA, Mubadala, DIF, EIA assets at $1.5 trillion, or 280 percent of GDP), and strong increases in non-oil exports and tourism should preserve the sovereign’s high credit rating, recently reaffirmed with a stable outlook by rating agency Fitch at “AA” for Abu Dhabi and “AA-” for the UAE.

Geopolitical tensions

The expansionary stance of the local and federal budgets, upcoming interest rate cuts, large construction projects, and the expected rise in oil production provide a solid foundation for the economic outlook. But key downside risks include a potential escalation in regional conflicts, which could deter investment, or a downturn in the global economy. The latter would translate into lower oil prices and could have a larger impact on the UAE’s non-oil activity compared to peers given its more internationally-integrated (and exposed) economy.