UAE Poised to Lead as Top GCC Economic Performer in 2024

In 2024, the UAE’s economy is poised for a strong rebound, becoming the frontrunner in the GCC with a projected overall GDP growth of 4.0 percent, as forecasted by Capital Economics. After a challenging 2023, the UAE’s economic growth will be supported by a more favorable oil output quota, allowing oil GDP to play a key role in driving economic expansion once again. 

In anticipation of strong non-oil activity, we expect the UAE’s overall GDP to grow by 4.0 percent, making it the top-performing economy in the Gulf region. This positive outlook was highlighted in a report by James Swanston, the Middle East and North Africa economist at Capital Economics. The combination of robust non-oil sectors and a more favorable oil output quota is set to drive the UAE’s economic growth in the coming year. 

The International Monetary Fund (IMF) projects the Emirates’ economy to expand by 3.9 percent in 2024, a growth rate higher than the 3.6 percent recorded this year, despite geopolitical challenges and global recovery uncertainties. According to the World Bank, the UAE’s second-largest economy is expected to grow by 3.3 percent in 2023, driven by robust domestic demand, particularly in tourism, real estate, construction, transportation, and manufacturing sectors.

In 2022, the UAE’s economy recorded its fastest pace of expansion since 2006, growing at an impressive rate of 7.9 percent. The oil sector witnessed growth of around 11 percent due to higher oil output, while the non-oil sector also expanded significantly, growing by 6.0 percent, as highlighted in Swanston’s report.

Despite facing challenges such as lower oil prices, the UAE is expected to achieve twin budgets and current account surpluses this year. This positive economic outlook allows the government to maintain a loose fiscal policy. Federal government spending is projected to be 7.0 percent higher than the budget allocated for 2022, providing room for further economic support, as noted by the Capital Economics analyst.

The non-oil economy in the UAE is experiencing robust activity, supported by a favorable fiscal policy. The Purchasing Managers’ Index (PMI) for the UAE remained close to multi-year highs in July, indicating strong economic performance. The report suggests that the non-hydrocarbon GDP growth for Q2 and the beginning of Q3 is expected to be around 2.0 percent quarter-on-quarter, reinforcing the positive economic momentum in the country. 

In recent times, Brent crude oil prices have seen a recovery; however, compared to its average of nearly $100 per barrel in 2022, it remains 20 percent lower. This significant drop in oil prices has had a negative impact on oil export receipts and, subsequently, on government revenues in the UAE.

Despite low-profile activity data indicating strong performance in the non-oil economy, it may not be sufficient to completely offset the impact of oil production cuts. The reduction in oil production has posed challenges for the economy. Nevertheless, there is optimism for the upcoming year, as James Swanston, an analyst at Capital Economics, believes that prospects for 2024 are more favorable. The UAE’s economy is expected to bounce back as the effects of the oil production cuts ease, paving the way for better economic growth and stability in the coming year.

At the beginning of 2023, there was a noticeable deceleration in GDP growth in the UAE. The Ministry of Economy’s estimate for Q1 indicated a year-on-year growth of 3.8 percent. The non-oil economy also experienced a slight slowdown, with growth at 4.5 percent year-on-year. However, the primary factor behind the slowdown was the oil sector. Due to oil production cuts since the previous October, the oil GDP expanded by a modest 1.9 percent year-on-year in Q1, as highlighted by Capital Economics.

The UAE’s oil production saw a reduction from 3.05 million barrels per day (bpd) at the end of Q1 to 2.9 million bpd in June, aligning with the agreements made by OPEC+. This decrease has led to the current output being at its lowest level since Q4 2021, and on a year-on-year basis, it is now showing a contraction.

Despite the UAE’s currency peg to the US dollar, which compelled the country to raise interest rates in line with the Federal Reserve over the past 18 months, the private sector credit growth has been on the rise. In April, private sector credit growth recorded a significant increase of 6.0 percent year-on-year, almost reaching its fastest pace in eight years. This uptick in credit growth indicates a boost in economic activity and confidence in the private sector, despite the adjustments in interest rates due to the currency peg.

The surge in private sector credit growth in the UAE, reaching 6.0 percent year-on-year in April, has been attributed, in part, to the thriving real estate sector. In Dubai, residential property prices experienced a remarkable increase of 11 percent in June compared to the end of 2022, driven by robust demand in the market. In contrast, residential property prices in Abu Dhabi only saw a modest rise of 2.0 percent during the same period. The real estate in Dubai has significantly contributed to the overall growth in private sector credit, as investors and homebuyers continue to show strong interest in the city’s property market.

Dubai’s hospitality sector has shown a remarkable recovery since the onset of the pandemic. Visitor arrivals in the city have surpassed their pre-pandemic seasonal norms, indicating a strong resurgence in tourism. This positive trend has translated into robust performance indicators for hotels in Dubai.

Occupancy rates for hotels are currently running at levels just below their pre-virus levels, signifying a rebound in travel and tourism activities. Additionally, daily rates per room have witnessed a significant increase of around 5.0 percent compared to pre-pandemic rates. This boost in room rates demonstrates the growing demand and confidence in Dubai’s hospitality sector as tourists and travelers return to experience the city’s offerings.

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