UAE Outlook

Although downside risks to the UAE’s externally-exposed economy have increased, our base case outlook for 2025-26 remains relatively upbeat with GDP growth averaging 4.2% in 2025-26 led by higher oil production, while non-oil growth will slow but is underpinned by continued reform and investment initiatives, strong international competitiveness metrics and healthy if narrowing macroeconomic balances. Property price rises are seen moderating amid rising supply and still-high interest rates. Escalating regional security tensions, a more severe drop in oil prices, an extended global downturn, and tighter financial conditions are the preeminent downside risks to the outlook. 

Outlook remains positive, despite external headwinds

Despite mounting external risks, our base case for the UAE economy in 2025–26 remains relatively upbeat, helped by rising energy production, still-strong tourism, population inflows, a pipeline of infrastructure and real estate projects, higher public spending and diversification steps. We see the main downside pressures coming from deteriorating global investor sentiment, weaker trade and tighter financing conditions, on top of the imposition of US tariffs on aluminum and steel, which could weigh on the UAE’s non-oil exports. GDP is forecast up 4.2% in 2025-26 on average, led by the energy sector, while non-oil growth moderates from the very robust 5.4% recorded in 2023-24 on average to a still solid 3.9%. (Chart 1.) We also think that a moderation from previous fast growth rates would be beneficial for long-term sustainability, noting that private sector lending growth stood at almost 4% at the end of 2024, with retail lending at a very robust 17%. (Chart 2.) Government growth and development initiatives continue to be forthcoming, with a new National Investment Strategy presented in March 2025, targeting raising annual FDI inflows from $31 billion (2023) to $65 billion by 2031, focusing on growing industry, logistics, finance, renewable energy and IT. 

The oil sector, meanwhile, is poised for rapid growth in 2025-26 (5.3%), as OPEC+ unwinds members’ voluntary crude production cuts and the UAE capitalizes on its higher production baseline (in recognition of its higher capacity). Output is expected to reach 3.27 mb/d by end-2026. In addition, the completion of the Dalma and Upper Zakum field projects by 2026 will push ADNOC closer to achieving its production capacity target of 5 mb/d by 2026.

Real estate sales growth to moderate 

Property sales remained buoyant in 2024, though the breakneck pace of growth of previous years has eased, with Abu Dhabi sales up 8.8% y/y (14.4% in 2023) and Dubai sales up 27% (57%). Prices, on the other hand, continued to rise (20% y/y in Dubai and 8.6% in Abu Dhabi), reflecting limited supply in the ultra-luxury residential market. (Chart 3.) Cognizant of undersupply and the risk of an overheating sector, the authorities launched key initiatives including Dubai’s real estate sector strategy 2033, which aims at expanding housing supply, raising homeownership to 33%, and doubling the sector’s contribution to GDP. Local and federal authorities also adopted several reforms, including capping cash transactions, the introduction of a digital auction platform, and data-sharing agreements in Dubai, while the Federal government provided tax guidance for individuals and investors to boost transparency, confidence, and promote stability while reducing the risk of illicit activities. Interest rate cuts would support demand, though higher supply and stricter regulations could weigh on sales and price growth over 2025-26. Meanwhile, CPI inflation could slow in 2025-26 to 1.3%, after stabilizing in 2023-24 at 1.6%, due to slower rent growth and the fall in fuel prices. However, tariff barriers, along with a potentially weaker US dollar, could provide some upside risk. (Chart 4.)

Fiscal surplus narrowing on lower oil revenues

The fiscal surplus is seen narrowing over 2025-26 due to lower oil prices ($70/bbl), though higher production levels would support hydrocarbon revenues. As a result, the fiscal surplus could decline from an estimated 5.5% of GDP in 2024 to 4.0% in 2025-26. (Chart 5.) Expenditures are expected to rise during the same period (3.6%), on higher allocations for infrastructure, diversification initiatives and social benefits as outlined in the federal and Dubai budgets.

Financial buffers in sovereign wealth funds are huge at 407% of GDP ($2.2trn). Meanwhile, the current account surplus is expected to narrow to 2.3% of GDP by 2026 due to lower oil prices, slower external demand, and the impact of the US’s 25% tariffs on iron, steel and aluminum, to which the UAE is exposed as the second largest supplier of aluminum to the US accounting for about 8.0% of the country’s non-oil exports. The recently agreed 10-year $1.4 trillion investment deal with the US, which focuses on AI infrastructure, semiconductors, and clean energy among others, highlights ambition in the tech sector, and good long-term capital returns would contribute to the country’s strong external position.

Trade and oil prices are the main risks to the outlook

Downside risks to the outlook, from lower oil prices to the trade-tariff induced deterioration in global trade, predominate in the current climate, potentially dampening investor sentiment and external demand. That said, the attractiveness of the UAE for tourists, and its economy to labor, capital and business, underpinned by its investment and diversification agenda, provide underlying resilience.

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