UAE outlook brightens as GCC economies defy global trade strains

Khaleej Times

4 hours ago

GCC economies are on course for a stronger-than-expected rebound in 2025, with the UAE poised to lead the regional growth charge.
Despite global trade tensions, latest flaring regional conflicts, and rising tariffs, the regional economic landscape is gaining momentum on the back of diversification, investment inflows, and improving oil output, economist argue.
According to the latest second-quarter Economic Insight report by the Institute of Chartered Accountants in England and Wales (ICAEW), prepared by Oxford Economics, the GCC's revised overall growth projection for 2025 is 4.4 per cent, up from the previous 4.0 per cent estimate, signalling a firming of economic fundamentals.
The UAE is forecast to achieve real GDP growth of 5.1 per cent next year — well above the global average of 2.4 per cent — reflecting the country's continued success in transitioning to a diversified, innovation-led economy.
Oil-sector growth in the GCC has been recalibrated to 4.5 per cent, reflecting a faster-than-anticipated rollback of Opec+ production cuts. Although average Brent crude prices are expected to hover around $67.3 per barrel in 2025 — placing fiscal pressure on oil-reliant states — Qatar and the UAE are projected to maintain budget surpluses. The UAE's fiscal prudence, enhanced by robust non-oil growth and a stable investment climate, stands out amid global uncertainties.
The UAE's strong economic trajectory in 2024 has laid a solid foundation for next year. Data from the Federal Competitiveness and Statistics Centre (FCSC) showed the UAE's real GDP grew by 4.0 per cent last year, reaching Dh1.776 trillion. Impressively, non-oil activities contributed 75.5 per cent of the total, amounting to Dh1.342 trillion, while oil GDP was Dh434 billion.
This performance underscores the UAE's rapid transformation into a diversified and globally competitive economy, driven by strategic reforms under the 'We the UAE 2031' vision. The government aims to raise GDP to Dh3 trillion by 2031, with sustainable development, emerging technologies, and enhanced competitiveness as key pillars.
'Each milestone brings us closer to our national goal. We are committed to positioning the UAE as a global hub for the new economy,' Minister of Economy Abdulla bin Touq Al Marri has said. He noted that the latest figures reflect the resilience of the UAE's economic model, especially as it expands into sectors like AI, fintech, green energy, and logistics.
Tourism continues to be a vital growth driver. Dubai alone welcomed 5.3 million international visitors in the first quarter of 2025, a 3 per cent increase year-on-year. The tourism sector is projected to contribute nearly 13 per cent of GDP in 2025. Major investments in hospitality, infrastructure, and events — aligned with the D33 economic agenda — are expected to sustain this upward trend.
Inflation in the UAE is expected to remain contained at around 2.5 per cent in 2025. Rising housing costs are likely to exert some upward pressure, although a weaker US dollar could make imports from non-dollar countries more expensive, partially offsetting the disinflationary effect of rising global tariffs.
Hanadi Khalife, ICAEW's head of Middle East, said: 'The GCC economies are showing remarkable adaptability amid shifting global trade dynamics. Investments in tourism, technology, and infrastructure continue to pay dividends, strengthening resilience and laying the groundwork for long-term growth.'
Saudi Arabia, the region's largest economy, has also seen a sharp upward revision in its 2025 growth forecast, now projected at 5.2 per cent. This follows a solid first-quarter performance and increased oil production averaging 9.7 million barrels per day. Non-oil sectors, particularly construction and retail trade, are performing robustly, with full-year non-oil growth projected at 5.3 per cent.
However, the kingdom faces growing fiscal challenges. Oil revenues declined 18 per cent year-on-year in Q1 2025, while public spending continued to rise, leading to a projected fiscal deficit of 3.4 per cent and a debt-to-GDP ratio likely to exceed 30 per cent. Despite this, investor confidence remains buoyant, bolstered by Saudi Arabia's recent credit upgrade by S&P to A+.
Scott Livermore, chief economist and managing director at Oxford Economics Middle East, said: 'We have upgraded our GCC forecast due to faster Opec+ output increases and sustained non-oil momentum in key economies like Saudi Arabia and the UAE. While uncertainty and trade shifts may place pressures on fiscal policy, the region's two key economies are expected to continue progressing toward economic diversification and attract global capital at an accelerated pace.'
Analysts argue that with trade realignments, shifting supply chains, and an evolving geopolitical climate, the UAE's diversified model and innovation-led strategies appear increasingly well suited to navigate the complex global environment. The country's forward-looking economic policies, expanding international partnerships, and sectoral agility make it a standout performer in a region already defying broader global slowdown trends, they noted.