UAE Central Bank Sets Ambitious 2024 GDP Forecast, Non-Oil Sectors and Fiscal Strength to Propel 6% Growth Next Year

The UAE Central Bank has revised its GDP forecast for 2024, projecting a robust growth rate of 4%. This optimistic outlook is largely driven by the strength of the non-hydrocarbon sectors, which are expected to grow by 5.2% in 2024 and 5.3% in 2025. Meanwhile, the hydrocarbon sector is anticipated to see a modest increase of 0.7% in 2024, with a more significant expansion of 7.7% predicted for 2025 as oil production ramps up.

Key Drivers of Economic Growth

The non-hydrocarbon sectors, including tourism, transportation, financial and insurance services, construction, and real estate, are set to be the main contributors to the UAE's economic growth. Strategic government initiatives aimed at attracting foreign investments, such as 100% foreign business ownership and comprehensive tax reforms, have played a significant role in boosting these sectors. Moreover, ongoing structural reforms are expected to further enhance the competitiveness of the UAE economy and attract more foreign direct investment (FDI).

Fiscal Stability and Government Spending

The UAE's fiscal outlook remains strong, supported by a significant increase in consolidated budget revenues, which reached AED 120.6 billion in the first quarter of 2024. This represents a 4.3% year-on-year growth, primarily driven by a 32.5% surge in tax revenues following the implementation of corporate tax reforms. Government expenditure has also increased by 5% year-on-year, totaling AED 97.1 billion in Q1 2024. This includes substantial investments in employee compensation, goods and services, and social benefits​.

Non-Hydrocarbon Sector Performance

The non-hydrocarbon sector's strong performance is attributed to several key factors. The wholesale and retail trade sectors have benefitted from various Comprehensive Economic Partnership Agreements (CEPA) and visa reforms, which have boosted trade volumes and transaction numbers. The manufacturing sector continues to attract FDI, especially under the “Operation 300 Billion” initiative, aimed at transforming the UAE into a global industrial hub. The construction sector is also experiencing growth, driven by numerous infrastructure projects, such as Etihad Rail and Dubai Creek Harbour​.

Hydrocarbon Sector Outlook

The hydrocarbon sector's growth is projected to remain relatively stable in 2024 but is expected to gain momentum in 2025. This growth is anticipated as global oil demand picks up and the UAE increases its oil production capacity. The sector's contribution to the UAE's GDP is crucial, given its significant role in the country's overall economic structure. However, the UAE's ongoing efforts to diversify its economy away from oil dependency are likely to mitigate any potential risks associated with fluctuations in global oil prices​.

Employment and Wage Growth

The positive trends in employment and wage growth are further bolstering the UAE's economic outlook. The number of employees covered by the Central Bank's Wage Protection System (WPS) remained stable in 2024, while the average employee salary increased by 4.8% year-on-year. This rise in wages is expected to support robust domestic consumption, which is a critical component of sustainable economic growth​.

Why 2025 Looks Even More Promising

Looking ahead, the UAE Central Bank forecasts an even more promising economic growth rate of 6% for 2025. This optimistic outlook is based on expectations of continued strong performance in the non-hydrocarbon sectors and a significant rebound in the hydrocarbon sector. The increase in oil production, along with sustained growth in key sectors such as tourism, real estate, and manufacturing, will likely contribute to this higher growth rate​.

Main Takeaways and Future Outlook

The UAE's economic outlook for 2024 and beyond remains positive, supported by strong fiscal policies, structural reforms, and a diversified growth strategy. The government's focus on non-hydrocarbon sectors and the implementation of business-friendly policies are expected to drive sustainable economic growth. The continued investment in infrastructure and human capital, along with efforts to enhance the business environment, will likely position the UAE as a leading global economic hub.

For businesses and investors, the UAE's robust economic fundamentals and growth prospects present numerous opportunities. The country's strategic location, state-of-the-art infrastructure, and business-friendly environment make it an attractive destination for foreign investments. As the UAE continues to diversify its economy and invest in new technologies and industries, the future looks bright for both domestic and international stakeholders.

Overall, the UAE Central Bank's revised GDP forecast underscores the resilience and dynamism of the UAE economy. As the country navigates the evolving global economic landscape, it remains well-positioned to achieve its growth targets and continue its trajectory as a leading economic powerhouse in the region.