IMF projects faster UAE growth this year on economic diversification boost

Fund says real GDP is set to grow by 4% annually, driven by both the oil and non-oil sectors

The Emirates is expected to register growth in tourism, construction, manufacturing and financial services. Victor Besa / The National

A rise in investment and the UAE’s efforts to boost the non-oil economy are driving a broad-based economic expansion that is set to outpace the International Monetary Fund’s previous estimates.

The overall real gross domestic product of the Arab world’s second-largest economy is expected to expand by an annual 4 per cent in 2024, the fund said on Monday at the conclusion of an article IV consultation with the country.

The latest projection by the IMF is 0.5 percentage points higher than the 3.5 per cent GDP growth it had estimated in its World Economic Outlook report in April.

“Economic growth in the UAE is broad-based, led by robust activity in the tourism, construction, manufacturing and financial services sectors,” IMF mission chief Ali Al-Eyd said.

“Foreign demand for real estate, increased bilateral and multilateral ties, and the UAE’s safe haven status continue to drive rapid growth in housing prices and an increase in rents, while adding to ample domestic liquidity.”

The country's oil economy is also expected to expand this year, driven by relatively higher crude prices and a rise in production under the UAE’s Opec+ quota boost, the fund said.

The economy of the Emirates rebounded strongly from the slowdown caused by Covid-19, growing by 7.9 per cent in 2022, the most in 11 years, to Dh1.62 trillion ($441 billion) at constant prices. It has maintained a robust growth momentum since.

It is estimated to have grown by 3.1 per cent in 2023, driven by strong non-oil economic sector expansion, according to data from the UAE Central Bank.

The IMF’s latest 2024 growth forecast is slightly lower than the Central Bank's estimate of 4.2 per cent.

Minister of Economy Abdulla bin Touq expects the country’s economy to expand by 5 per cent this year.

The country's non-oil sector, which accounts for about 73 per cent of GDP, will underpin growth this year and the next, he told state news agency Wam in February.

The government's policy measures aimed at economic diversification and expanding the country’s industrial base will also continue to boost growth, Mr bin Touq said at the time.

The UAE is pursuing several economic initiatives, including Operation 300bn, a programme to position the country as an industrial centre by 2031 through efforts to increase the industrial sector’s GDP contribution to Dh300bn by 2031, from Dh133 billion in 2021.

Last year, the UAE achieved 30 per cent of the strategy’s target as the industrial sector’s contribution to GDP hit Dh197 billion.

Minister of Economy Abdullah bin Touq expects economic momentum to continue this year. Victor Besa / The National

The IMF said that fiscal and external surpluses are expected to remain high in the UAE this year.

The budget surplus is projected to be about 5 per cent of GDP while public debt is on track to decline further to 30 per cent of GDP.

“The current account surplus is projected at around 10 per cent of GDP in 2024,” Mr Al-Eyd said.

“Capital spending is expected to meet ongoing infrastructure needs, and the introduction of the corporate income tax will support non-hydrocarbon revenue with its full implementation in the coming years.”

The economic outlook remains subject to external risks, including geopolitical headwinds in the region, global growth concerns and commodity market volatility.

“However, the UAE’s large public financial buffers help mitigate risks, while accelerated public and private investment and structural reforms, including to meet more ambitious climate goals and develop low-carbon and renewable energy and technology, could spur growth more than expected,” Mr Al-Eyd said.