UAE Central Bank raises 2024 growth forecast for country's economy to 5.7%

Regulator has cut inflation projections for this year and the next

The UAE's economy grew by 3.8 per cent year on year in the second quarter, the Central Bank said. AFP

The UAE Central Bank has increased its 2024 growth forecast for the country's economy to 5.7 per cent, from 4.3 per cent previously, due to an expected rise in oil production next year.

The banking regulator also revised downwards its growth projections for 2023 to 3.1 per cent from 3.3 per cent, "largely reflecting the extension of oil production cuts through the end of the year", it said in its Quarterly Economic Review report.

While the country's oil gross domestic product is expected to contract by 3.4 per cent annually this year due to output cuts, "as production resumes in 2024" oil GDP growth is forecast to rebound to 8.1 per cent, corresponding to an average of 3.2 million barrels per day, the Central Bank said.

In its latest meeting, the Opec+ group of oil producers announced voluntary production cuts of 2.2 million barrels per day for the first quarter of 2024.

The UAE will voluntarily cut its oil output by an additional 163,000 barrels a day from January until the end of March next year. The country's oil production will be 2.91 million bpd during that period.

Meanwhile, the UAE's non-oil GDP growth has been raised to 5.9 per cent and 4.7 per cent, in 2023 and 2024, respectively, the Central Bank said.

"In addition to the changes in oil production reflecting the recent announcements, the forecasts account for a deceleration in the non-oil sector for 2023 and 2024 as global demand softens," the report said.

Overall, in the second quarter of the year, the UAE's economy grew by 3.8 per cent year on year, compared with an 8 per cent annual rise in the same period last year.

"While the overall growth rate slightly increased with respect to the first quarter of 2023, there was a compositional shift with stronger activity in the non-oil sector [which accounts for close to 75 per cent of GDP] and a decline in oil production," the report said.

Non-oil economic growth accelerated to 7.3 per cent annually in the second quarter.

"Across the different segments of the non-oil economy, a large expansion is registered for financial and insurance services, construction, real estate, wholesale and retail," the report said.

Oil sector GDP growth dropped in the second quarter of 2023 by 5.1 per cent annually, reflecting the "Opec+ agreements, for which the UAE oil production fell to an average of 2.9 million barrels per day during the quarter".

The forecasts for 2023 and 2024 "remain subject to uncertainty, in particular due to the evolution of the conflicts in Ukraine and Gaza, faster-than-expected deceleration in global growth, further Opec+ cuts or increases in oil production, and subdued oil production of other Opec+ members", the report added.

Global growth is forecast to decelerate to 2.4 per cent this year – marking a recession in the economy – from 3 per cent in 2022 as deepening inequalities, mounting debt and uneven post-Covid recovery take hold, the UN Conference on Trade and Development (Unctad) said in October.

All regions, except for eastern and central Asia, are expected to post slower growth this year compared to 2022, with Europe registering the largest drop.

Its projection for growth of 2.5 per cent in 2024 depends on the eurozone's recovery and the avoidance of adverse shocks by other leading economies, Unctad said.

For the UAE, Dubai bank Emirates NBD expects headline GDP growth of 3.3 per cent next year, based on the non-oil economy expanding by 4.5 per cent.

The lender "expects no oil sector GDP growth in 2024 as the UAE agreed at the November Opec+ meeting to deepen production cuts in Q1 2024 and will likely only gradually increase output over the remainder of next year", it said in a note on Friday.

Meanwhile, the UAE's government revenue reached Dh246.9 billion ($67.2 billion), or an annualised 26.4 per cent of GDP in the first half of 2023. That was down 19.2 per cent annually, mainly because of lower taxes and other revenue than in the first half of 2022, the Central Bank said.

Total expenditure reached Dh199.5 billion, marking an 8.3 per cent increase compared with the same period last year.

The Central Bank also marginally lowered its inflation projection for 2023 to 2.4 per cent from 2.8 per cent.

"The downward revision mainly reflects the stronger-than-expected pass-through of the decline in food prices and appreciating dirham, partially offset by rising housing prices," it said.

In 2024, inflation is projected to slow further to 2.1 per cent, a downward revision from 2.6 per cent, in line with global disinflationary trends.

Trade

The UAE's total non-oil exports increased by 15.6 per cent annually in the first half of this year, to reach Dh199.6 billion, the Central Bank said.

Switzerland emerged as the UAE’s major non-oil export partner, followed by Turkey and Saudi Arabia.

Gold accounted for 40 per cent of non-oil exports, followed by aluminium, and petroleum oils and oils obtained from bituminous minerals.

Re-exports also grew by 13.5 per cent in the first half of the year to Dh302 billion, with Saudi Arabia, Iraq and India the main partners.

Telecoms equipment and diamonds dominated re-exports.

Imports also increased by 19.1 per cent between January and June to reach Dh662.3 billion, "supported by a dynamic non-oil sector and a slight appreciation of the currency vis-à-vis trading partners", the report said.

Gold topped the list of the most imported goods, followed by telecoms equipment, diamonds and motor vehicles. China, India and the US were the key trading partners for imports.