Trade, manufacturing, construction and tourism will help to propel GDP growth to a stronger 3.8 per cent this year as the rise in oil output slows, estimates Emirates NBD.
Expansion would pick up from 3.7 per cent last year, the country's biggest bank by assets estimated.
Forecasts for both years were raised by the bank, up by 0.7 percentage points for last year and 0.3 percentage points for this year.
"We expect regional demand, buoyed by strong government spending in Saudi Arabia, Qatar and Oman to have a positive knock-on impact on the UAE's economy," Khatija Haque, senior economist at Emirates NBD wrote in a quarterly research report, released on Thursday.
The uptick in the UAE's economy this year is in contrast to waning performance elsewhere in the GCC, where average growth would slow to 4.6 per cent this year from an estimated 6 per cent last year, according to the bank.
Expansion in the past two years was supported by higher oil output as the GCC raised production to make up for cuts to Libyan output in 2011 and more recently for the dip in Iran's exports as a result of international sanctions.
But oil output would remain broadly flat this year under its base-case scenario, the bank wrote. Most GDP growth would come from the non-oil sectors this year, it estimated.
Offsetting Abu Dhabi's flat oil output would be a 5 per cent acceleration in the non-oil sector, it estimated. In a boost to the emirate's construction market, a consortium led by Arabtec was last week awarded the Dh2.4 billion (US$653.3 million) contract to build the Louvre Abu Dhabi.
In Dubai, the epicentre of the country's non-oil economy, growth would register 3.9 per cent this year, the bank said. Spearheading activity was robust performance in the services industry, as measured by HSBC's purchasing managers index, which reached a 19-month high last month. Manufacturing, which accounts for 14 per cent of the emirate's GDP, would continue to strengthen.
China's accelerating economy and strong spending in Saudi Arabia, Oman and Qatar would help to underpin a pickup in non-oil trade this year, said Emirates NBD.
Growth in money supply and private-sector credit would also pick up this year, it said.
Although the level of fiscal stimulus in the UAE is below that of other parts of the region, the economy is still expected to feel the benefits of government spending elsewhere.
"Manufacturing and construction companies would benefit from higher infrastructure investment in neighbouring countries. Job creation efforts and higher salaries will continue to support tourism and retail," wrote analysts at the bank.
In the absence of expansion in Saudi Arabia's oil sector, activity would be bolstered by higher than budgeted public sector expenditure, the bank said. Growth would moderate from 6.8 per cent last year to 5.4 per cent this year.
Jadwa Investment, the Saudi investment bank, expects GDP in the GCC's largest economy to slow to 4.2 per cent this year, from 6.8 per cent last year.
"Education, infrastructure, construction will benefit from capital spending, while retail, finance and utilities will be supported by domestic consumption," said Fahad Alturki, senior economist at Jadwa. "Domestic consumption will also be supported by the labour market reform including the Saudisation programme to create jobs and establishing a minimum wage in the private sector."
Inflation may emerge with greater force this year in the UAE and wider GCC, said Emirates NBD.
Consumer prices in the UAE would rise by an average of 2.5 per cent this year as the housing market revived, it forecast. Across the GCC, inflation would average 4.5 per cent.
Inflation in the capital reached 1.1 per cent last year, according to a report released yesterday from Statistics Centre-Abu Dhabi. Prices rose 0.7 per cent last month from the same period a year earlier, it said, with the largest increases recorded in the hotels and restaurant segment.