UAE economy shows no signs of slowdown as non-oil sectors continue to thrive
The UAE's economy will post robust growth in 2025, driven by consistent policies, diversification efforts and strategic investments across various sectors. As part of its Vision 2021 initiative, the UAE has successfully reduced its dependence on oil, focusing on real estate, technology, tourism, hospitality and sustainable energy, according to experts.
Leading analysts, economists and executives said the non-oil sectors, particularly tourism, healthcare, and finance, are expected to expand significantly, fuelled by increased foreign investments and a growing population. They are of the view that technological advancements, particularly in fintech and artificial intelligence, will further enhance productivity and innovation, attracting start-ups and established companies alike.
'The UAE's economy in 2025 is expected to be characterised by a well-balanced mix of traditional and emerging sectors, driven by progressive policies, infrastructural development, and a strong focus on innovation and sustainability,' experts said.
Building Investment Plans
Dr Monica Malik, Chief Economist at Abu Dhabi Commercial Bank, is confident about the continuity of upward economic growth of the UAE despite global uncertainties and said the country has a bright future as its visionary leaders ensure consistent policies and business-friendly environment in the country.
'We remain very positive on the UAE's economic outlook, with strong fundamentals and growth outlook. We see the building investment programme as a key driver of economic activity in 2025 and looking forward, though also see a healthy consumption backdrop,' Dr Malik
told BTR.
She was of the view that the UAE has successfully diversified its economy and multiple sectors will drive the gross domestic product (GDP) growth in years to come.
'We continue to see a number of sectors seeing healthy performs, including construction, financial services, etc. While global uncertainties have increased, we still expect to see expansion in externally facing sectors such as transport and hospitality,' she said.
'The increase in the UAE's Opec+ baseline oil production target is also positive for the growth outlook in 2025 and 2026,' she added.
To a question about inflation, she said it will remain stable this year. 'We see a slight moderation in UAE inflation, to around 1.8 per cent in 2025. This largely reflects a lower fuel prices and a moderation in average oil price, contained imported inflation with a strong US dollar outlook, and the competitive environment remaining. Rental prices are expected to remain a key driver of inflation, especially in Dubai,' she said.
Robust Growth Ahead
Saad Maniar, Senior Partner at Crowe UAE, said the UAE economy is expected to exhibit robust growth, driven by diversification efforts and strategic investments in innovation and technology. The nation's strong fiscal framework and progressive policies will continue to attract global investors.
Elaborating some of the key sectors driving the UAE economy this year, he said primary focus will remain on renewable energy, technology, tourism, financial services and logistics.
'Investments in infrastructure and smart city initiatives will also play a significant role in bolstering economic growth,' Maniar told BTR.
To a question, he said the government should explore new sectors for sustained economic growth in the years to come.
'To ensure sustained economic growth, the government should further explore sectors such as artificial intelligence, biotechnology, pharmaceutical, manufacturing and sustainable agriculture. Fostering innovation in these areas will enhance the UAE's global competitiveness,' he said.
Major challenges
As far as major economic challenges are concerned, Maniar said maintaining economic diversification amid global market fluctuations will remain a challenge for the economy. Additionally, geopolitical situation and potential shifts in oil prices could pose risks to sustained growth, he said.
About inflation in 2025 and overcoming rising expenditures, he said inflation is predicted to remain moderate in 2025.
'Residents can mitigate rising expenditures by prioritising savings, investing in stable assets, and staying informed about economic trends to make prudent financial decisions,' he said.
Non-oil Sector Expansion
Bal Krishen, Chairman, Century Group, said the expansion in the non-oil sector is expected to be the key driver for the economy in the UAE in 2025.
'Key sectors posting growth will continue: wholesale and retail, transportation, construction, and financial services. The oil sector will still be strained due to the fact that Opec+ has delayed unwinding the oil production cuts to April 2025. However, as these cuts should progressively disappear during the rest of the year, the contribution of the oil sector to growth should increase, together with that of investments in the gas sector,' Krishen told BTR.
Besides, he said low inflation and expected monetary easing could support private consumption. The rising spending will also be supported by new practices such as the golden visa and remote work visa that the UAE has started to apply for to increase the number of migrant workers.
Furthermore, he said the UAE announced its largest-ever budget for 2025, which hints at the possibility of public spending's contribution to growth, currently around 12 per cent of GDP, increasing.
'The latter contribution will be mainly driven by increased infrastructure investment and other capital expenditures. More reforms are anticipated by the economic authorities in view of the emerging competition of Saudi Arabia as a substitute regional platform for trade and business,' he said.
Interest Rates Reduction
As the currency is pegged, the UAE Central Bank is most likely to toe the US Federal Reserve with the policy of continuing rate cuts through 2025, according to Krishen.
'The robust domestic demand, coupled with population growth, could continue to drive the inflationary pressures emanating from the demand side. An increase in housing prices may put upward pressure on inflation. The low level of world energy prices is likely to partly offset the upside pressures on inflation via transport prices.'
He said financial markets are likely to sustain their scintillating performance, buoyed by the UAE's political and economic stability, which has drawn substantial interest from foreign investors. The DFMGI Index has returned nearly 32 per cent over the past year, a trend likely to persist.
'Starting this year on full steam, it is expected to be an equally busy IPO market in 2025, riding the wave built by 2024, during which seven leading listings raked in $6 billion. Similarly, new IPOs will tend to continue surfing forward as 61 per cent of the listed companies have been traded in the positive territory for the last three years.'
He said the overall outlook for the UAE economy in 2025 is promising, with strong growth, stable financial markets, and a vibrant IPO market.
'The government's strategic plans and policies for attracting foreign investments and promoting economic diversification are expected to continue driving the growth and development of the economy,' he said.
Dominating Sectors
Krishen is confident that the UAE economy is projected to grow four per cent in 2025, supported by strength in the non-oil sector. This may be indicative of the fact that the banking and real estate sectors, which contribute significantly to the economy, would continue their high growth momentum in the remaining parts of the year.
'While the US labour market is showing resilience, this may keep Fed rates higher for the year and hence earnings for UAE banks can be upgraded as it currently reflects a 30 basis points margin contraction which implies a better margin outlook in interest-sensitive banks like ENBD, Mashreq Bank, CBD, RAK, and ADCB.'
Moreover, a higher lending rate can overcome the drag due to higher provisioning and 15 per cent taxes. Most of the construction projects in the UAE are funded by borrowed money rather than internal resources or equity. Referring to Bloomberg Intelligence Real Estate, he said the growth in wholesale loans is likely to be in the range of six to eight per cent compounded annually over five years, assuming 40-60 per cent of total funding comes from credit. These factors are likely to benefit key banking stocks and help them rally further.
'While the UAE real estate markets were optimistic in 2024, growth is expected to carry forward into 2025. Strong policy and initiatives by the government of the country, expected execution of various new projects within the real estate sector, and a market environment that prioritises stability over speculation will support the sector.'
Besides strong private and sovereign wealth inflow, he said favourable demographic trends are also expected to keep investors confident through the next few months of inflation and high interest rates.
Referring to Bloomberg Intelligence data, he said the UAE has a pipeline of projects totaling $16 billion in the next two years, and $358 billion in the next five years. For comparison, in 2022, this figure stood at $180 billion, indicating the large scale of ongoing investments in infrastructure and development, adding to the bullish momentum of stocks in this sector.
'It is also estimated that residential prices will rise an average eight per cent in 2025, while Dubai's prime home prices will rise five per cent this year, topping London's two per cent and New York's three per cent. These factors are likely to extend the benefits that the sector and its constituents witnessed.'
Diversification Efforts
Damian Hitchen, Regional Head for Asia Pacific, Middle East and North Africa (APAC-Mena region), and CEO of Saxo Bank Mena, said the UAE economy in 2025 is anticipated to be robust and resilient, driven by diversification efforts and strategic investments in non-oil sectors.
'With visionary initiatives and reforms, the UAE aims to position itself as a global hub for innovation, technology, and sustainable development. Continued inward migration, building on the growth in tourism, real estate, and financial services is expected to bolster the economy, alongside significant advancements in infrastructure and digital transformation,' Hitchen told BTR.
As of the current data available, he said the exact population growth rate of the UAE in 2024 hasn't been definitively documented, but all indicators point to a steady influx of expatriates and foreign workers, which significantly boosts the population figures annually. 'The trend is expected to continue, supporting the robust economic outlook projected for 2025.'
About the inflation in the UAE, he said it is expected to remain moderate, influenced by global supply chain disruptions and energy prices. To manage rising expenditures, residents should:
Budget wisely: Establish a monthly budget to track expenses and prioritise essential spending.
Invest in savings: Explore savings plans and investment opportunities to build financial security.
Adopt sustainable practices: Reduce utility costs by adopting energy-efficient habits and sustainable living.
Seek financial advice: Consult financial experts for personalised strategies to manage inflation impacts.
KEY FACTORS DRIVing THE UAE ECONOMY
Damian Hitchen, Regional Head for Asia Pacific, Middle East and North Africa (APAC-Mena) region and CEO of Saxo Bank Mena, mentioned some of the key sectors expected to drive the UAE economy this year include:
Tourism and Hospitality: with record numbers passing through both Dubai and Abu Dhabi international airports, and with inward tourism in Dubai hitting over 18 million in 2024, the tourism book shows no sign of slowing and with this brings in significant domestic spending into the UAE economy
Real Estate: Development projects and foreign investments continue to thrive, supporting the sector's expansion.
Financial Services: The UAE's strategic position as a financial hub continues to attract global investors and businesses. Both onshore and offshore (DIFC-ADGM) active licensed firms are at an all-time high, and indicators are this will continue into 2025.
Technology and Innovation: Investments in smart cities, clean energy, AI, and blockchain technology are driving the tech sector forward.
Healthcare: Expanding healthcare infrastructure and services are vital for the population's well-being, in addition to the UAE continued to build its reputation and use as a 'medical destination' for the wider GCC and Africa.
To sustain economic growth, Hitchen said the UAE government could explore and invest in the following sectors:
Renewable Energy: Harnessing solar and wind power to reduce dependence on fossil fuels and promote sustainability.
Agri-Tech: Developing advanced agricultural technologies to enhance food security and reduce import reliance. This is of particular interest to a region which has historically been very import dependent on food security.
AI and Blockchain: Continue to invest, and embrace this emerging technology into all aspects of daily life.
Biotechnology: Promoting research and development in biotech to advance healthcare and pharmaceuticals.
Education and Training: Investing in education reforms and vocational training to build a highly skilled workforce.
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