UAE economy bucks global trend as Europe, U.S. recession risks grow

The United Arab Emirates' economy is set to grow in 2025 due to its diversified economy and strong fiscal buffers, remaining largely insulated from global headwinds despite recession warnings for Western economies by JPMorgan, Moody's and Fitch.
The Gulf nation's economic resilience contrasts with rising concerns of a mild recession in the United States and parts of Europe in the third or fourth quarter of 2025. Analysts cite non-oil sector performance, strategic investments and fiscal strength as key factors behind the divergence.
'The UAE's projected 4.5 per cent growth in 2025 stands in sharp contrast to a global outlook marked by mounting risks and downward revisions,' Osama Al Saifi, Managing Director for MENA at Traze, told Arabian Business.
The country's economy grew by 3.8 per cent year-on-year in the first nine months of 2024, with non-oil GDP contributing about AED 987 billion, approximately 75 per cent of the total AED 1.322 trillion. The anticipated recovery in oil GDP, as OPEC+ cuts are gradually reversed, could offer an additional growth driver.
During this period, the UAE saw significant growth across several sectors, Vijay Valecha, Chief Investment Officer at Century Financial, noted.
'The transport and storage sector led the way at 7.9 per cent growth due to a 20 per cent surge in airport passenger traffic. The construction and building sector expanded notably by 7.4 per cent, driven by significant urban infrastructure investments, while the financial and insurance sector grew by 6.8 per cent,' he said.
UAE financial markets have demonstrated greater resilience than global peers during recent volatility.
'Out of 13 major indices analysed, only six have recovered from recent market drawdowns – with Dubai and Abu Dhabi indices taking about 38 and 28 days respectively to recover, ranking fifth and third in recovery speed,' Valecha added.
In the first quarter of 2025, Valecha said, the Dubai Financial Market welcomed 19,366 new investors, with 86 per cent being foreign nationals. The market recorded its highest Average Daily Trading Value in over a decade at AED 663 million, marking a 67 per cent increase from the same period in 2024.
Recession concerns easing but risks remain
The International Monetary Fund projects global trade growth to slow to 1.7 per cent this year, presenting a significant test to Gulf economies. With growth in the Gulf Cooperation Council expected to moderate to around 3 per cent, down from earlier projections, external risks remain substantial.
JPMorgan recently revised its U.S. recession probability from 60 per cent to 40 per cent following a temporary pause in U.S.-China tariff actions. U.S. growth is projected to decrease to 1.8 per cent in 2025, one percentage point lower than in 2024.
'The likelihood of a global recession in 2025 remains elevated due to escalating trade frictions and protracted monetary tightening,' Al Saifi said. 'In this regard, economies strongly exposed to the U.S., such as Canada and Mexico, could see possible contractions.'
For the Gulf region, recessionary pressures would most likely be transmitted through a downturn in global demand and subsequent strain on oil prices. 'A recession in the U.S. or Europe would likely exert downward pressure on global oil demand and weigh on fiscal performance,' Al Saifi explained.
Nevertheless, Gulf economies appear better positioned than in previous cycles.
'Substantial sovereign wealth assets, contained inflation, and firm domestic demand provide a degree of protection,' Al Saifi added. 'Given the region's currency pegs to the U.S. dollar, any interest rate reductions by the Federal Reserve would translate into more accommodative financial conditions.'
Hamza Dweik, Head of Trading at Saxo Bank MENA, noted that the UAE's 'strong macroeconomic fundamentals, active IPO pipeline, and diversified revenue streams position it as a 'relative safe haven in the global landscape.'
Inflation in the UAE is expected to remain at approximately 2 per cent throughout 2025, despite upward pressure from global tariffs.
'Consumer spending is expected to expand 4.3 per cent, supported by steady economic growth and a likely easing of interest rates,' Al Saifi said. This contrasts sharply with persistent inflation challenges in Western economies.
Sectors show varying vulnerability
Not all sectors in the UAE economy are equally protected from global headwinds, experts say.
'Oil and gas, despite aggressive diversification measures, still contributes about 25 per cent of the UAE's GDP,' Valecha said. 'In times of recession, global oil demand could fall drastically, impacting many UAE-based energy firms through falling oil prices.'
Tourism and hospitality could see reduced vacation spending despite Dubai attracting 18.72 million international visitors in 2024, marking a 9.2 per cent year-on-year increase. 'This could mean that airlines like Emirates and Etihad, along with major hotel chains, may experience a decline in revenues,' he added.
The real estate sector, which relies on foreign investment and capital flows, could also face challenges. Valecha added that major property developers could potentially witness slower sales and declining property prices and construction projects may face delays or cancellations in extreme cases, especially if tied to foreign investments.
Dweik identified specific vulnerable areas: 'Logistics, real estate – particularly off-plan investment-driven projects – and non-oil exports like aluminum and petrochemicals are most vulnerable to a potential U.S. recession.'
More resilient sectors include consumer staples, healthcare and utilities. 'A defensive sector like healthcare may remain well supported by inelastic demand for medicines and healthcare products, regardless of overall economic conditions,' Valecha explained.
'Companies like Dubai Electricity and Water Authority and Abu Dhabi National Energy Company, backed by the state, would be insulated from market volatility.'
Trump visit strengthens economic outlook
The UAE's economic prospects received a significant boost from recent agreements with the United States following President Donald Trump's May visit. Commercial agreements exceeding $200 billion were signed, with a broader investment commitment of $1.4 trillion over the next decade.
Bilateral trade talks focused on artificial intelligence, advanced technologies, and semiconductors, culminating in the launch of the US-UAE AI Acceleration Partnership. The UAE secured a deal to import 500,000 Nvidia H100 chips annually and will develop a 5-gigawatt AI data centre in Abu Dhabi – set to be the largest outside the US.
In the energy sector, the UAE pledged to increase investments in U.S. energy projects from $70 billion to $440 billion by 2035. This includes a $25 billion partnership between UAE sovereign wealth fund ADQ and U.S. firm Energy Capital Partners, and a $60 billion partnership with ExxonMobil, Occidental Petroleum, and EOG Resources.
The manufacturing sector will see Emirates Global Aluminum invest $4 billion in a new primary aluminum smelter in Oklahoma – the first of its kind in the U.S. in 45 years. A Gallium project with RTX and the UAE's Tawazun Council aims to secure U.S. semiconductor and defence supply chains.
'Trump's visit yielded substantial outcomes in artificial intelligence, energy, aviation, manufacturing, and critical minerals,' Valecha said. 'President Trump's imposition of a 10 per cent baseline tariff on UAE imports – lower than those faced by many other nations – had only a marginal impact.'
Investment patterns and opportunities
The global economic environment has prompted significant shifts in investment behaviour. 'We are observing a similar trend among MENA investors, who are increasingly diversifying away from U.S.-centric portfolios,' Dweik said. 'While the U.S. remains a key market, recent volatility and policy uncertainty have prompted a tilt toward European and emerging market assets.'
Valecha cited analyst expectations of significant fiscal stimulus worth €500 billion over the next 12 years following recent German elections. 'This fiscal stimulus would focus on infrastructure spending in Germany, the largest economy in the Eurozone, accounting for about one-fourth of the region's GDP,' he explained.
UAE stock markets currently offer value opportunities, according to Valecha, with Dubai's main stock index trading about 16.5 per cent below its five-year average valuation. The Abu Dhabi Securities Exchange index shows a similar discount of about 16.3 per cent from its five-year average.
Liquidity conditions in UAE markets have strengthened significantly. 'In Q1 2025, DFM recorded its highest Average Daily Trading Value in over a decade at AED 663 million, marking a 67 per cent increase from AED 398 million in Q1 2024,' Valecha noted.
For regional investors navigating this environment, experts recommend diversification. 'Investors should consider blending traditional and alternative assets, such as sukuk, infrastructure, and private equity, while allocating capital across resilient sectors like healthcare, technology, and tourism,' Dweik said.
Looking ahead, the IMF forecasts that the UAE's GDP will increase by 4 per cent in 2025 and by 5 per cent in 2026, making it the fastest-growing economy among Gulf Cooperation Council nations. The UAE economy is projected to surpass the overall growth rate of oil-exporting nations, which are expected to grow by 2.6 per cent in 2025 and 3.1 per cent in 2026.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Gulf Today

an hour ago

• Gulf Today

UAE, Canada leaders explore ways to boost bilateral ties

Sheikh Abdullah Bin Zayed Al Nahyan, Deputy Prime Minister and Minister of Foreign Affairs, met Mélanie Joly, Minister of Industry and Minister responsible for Canada Economic Development for Quebec Regions, during his working visit to Canada. During the meeting, Sheikh Abdullah discussed the close friendship between the UAE and Canada, explored frameworks for cooperation, and ways to enhance it in a manner that serves mutual interests and contributes to the prosperity and well-being of both nations. The two sides reviewed prospects for cooperation across various sectors, particularly in industry, trade, investment, technology, and renewable energy. During the meeting, Sheikh Abdullah highlighted the importance of joint efforts between the two friendly nations to strengthen cooperation in the industrial sector, building on the strong UAE-Canada ties and the sector's diverse and attractive opportunities that align with both countries' ambitions for sustainable economic development. The meeting was also attended by Reem Bint Ebrahim Al Hashimy, Minister of State for International Cooperation; Dr Thani Bin Ahmed Al Zeyoudi, Minister of Foreign Trade; Sultan Al Mansoori, Envoy of the Minister of Foreign Affairs; Saeed Mubarak Al Hajeri, Assistant Minister for Economic and Trade Affairs, and Abdulrahman Ali Al Neyadi, the UAE Ambassador to Canada. On Friday, Sheikh Abdullah had met Anita Anand, Minister of Foreign Affairs of Canada. During the meeting, Sheikh Abdullah and the Canadian Foreign Minister discussed bilateral relations and means to further develop them across various fields. Sheikh Abdullah and Anita Anand also reviewed opportunities to enhance cooperation in several key sectors, including the economic, educational, investment, trade, technology and energy fields. Sheikh Abdullah reiterated the deep and long-standing friendship between the UAE and Canada, and highlighted the UAE's commitment to further advancing this distinguished relationship, which holds promising opportunities for growth and development in line with the aspirations of both nations for a more prosperous future. Discussions also touched on the latest regional and international developments, with a focus on their repercussions for global peace and security. Also on Friday, Sheikh Abdullah had met François-Philippe Champagne, Canada's Minister of Finance and National Revenue. Sheikh Abdullah and Champagne discussed the distinguished bilateral relations between the UAE and Canada and explored ways to promote them to serve both countries' shared interests and developmental priorities. WAM

Tahawul Tech

3 hours ago

• Tahawul Tech

Nedaa participates in CCW 2025 to boost partnerships in critical communications

Dubai — Professional Communication Corporation – Nedaa's participation in Critical Communications World (CCW) 2025 underscores the UAE's commitment to drive innovation in mission-critical telecommunications. The high-level delegation was led by H.E. Mansoor Bu Osaiba, CEO of Nedaa, at Critical Communications World (CCW) 2025, in Brussels, Belgium from June 17 to 19, 2025, along with senior executives and technical experts. Nedaa's attendance at CCW 2025 highlights its ongoing commitment to advancing mission-critical communication solutions and building strategic international partnerships. The delegation aimed to explore the integration of innovative technologies, including Artificial Intelligence (AI) and the Internet of Things (IoT), to enhance the security, resilience and efficiency of communication networks. 'Our participation at CCW 2025 underscores our commitment to driving innovation in mission-critical telecommunications,' said Osaiba. 'Through active engagement with international industry leaders and innovators, we aim to bring advanced communication solutions back to Dubai, further solidifying its position as a leading global smart city.' During the three-day event, Nedaa showcased its latest developments, explored potential collaborations and engaged in key industry discussions and presentations. The CCW platform provides an ideal setting for exchanging insights on global trends, challenges and opportunities in the critical communications sector. Nedaa's active presence at CCW 2025 reinforces its leadership in enhancing public safety and security through robust and future-ready communication infrastructures. Leveraging cutting-edge technologies, Nedaa continues to set the standard for high-quality critical communication services, playing an essential role in Dubai's ongoing evolution as an innovative, secure, and smart city.

Khaleej Times

5 hours ago

• Khaleej Times

Ajman Department of Land and Real Estate Regulation and Ajman Bank sign strategic MoU

The Ajman Department of Land and Real Estate Regulation has signed a Memorandum of Understanding (MoU) with Ajman Bank, marking a new chapter of collaboration aimed at advancing financial integration and enhancing banking services through innovative and digital-first solutions. The agreement was signed by Eng. Omar bin Omair Al Muhairi, Director General of the Department of Land and Real Estate Regulation, and Mustafa Al Khalfawi, Chief Executive Officer of Ajman Bank. Commenting on the signing, Eng. Omar bin Omair Al Muhairi stated: 'This strategic partnership with Ajman Bank reflects our commitment to advancing the department's digital capabilities and streamlining financial performance. Ajman Bank plays a vital role in supporting our ongoing efforts to build an agile, tech-enabled regulatory environment that responds effectively to the needs of real estate developers and investors.' He further added that through this collaboration, the department will gain access to comprehensive, periodic reports on escrow accounts, enabling greater oversight of real estate development performance. The partnership also paves the way for more seamless financial transactions across stakeholder groups, reducing procedural complexity and delivering future-ready services grounded in speed, privacy, and operational excellence. Mustafa Al Khalfawi, CEO of Ajman Bank, commented: 'At Ajman Bank, we believe in the power of institutional collaboration to elevate the quality of financial services. This agreement reflects our shared vision of trust, integration, and efficiency, and supports Ajman's positioning as a competitive and investment-friendly emirate.' This partnership serves as a model for effective synergy between regulatory bodies and the financial sector, setting the stage for a more stable, transparent, and investor-centric real estate ecosystem in Ajman.