The UAE economy is projected to expand strongly over the next two years, supported by non-oil activity, rising oil output, and easing inflationary pressures.
Upgraded Growth Forecasts
The Central Bank of the UAE (CBUAE) has revised its growth outlook upward, projecting the economy to expand by 4.9% in 2025 (up from 4.4%) and 5.3% in 2026.
In Q1 2025, GDP rose 3.9% year-on-year, driven by a strong 5.3% increase in non-oil activity. Sectors such as manufacturing, financial services, construction, and real estate played a key role.
- Non-oil economy growth: 4.5% in 2025, 4.8% in 2026
- Hydrocarbon sector growth: 5.8% in 2025, 6.5% in 2026
These figures reflect both strong domestic momentum and updated OPEC+ production plans.
Inflation Revised Downward
Inflation stood at 0.6% in Q2 2025, largely due to lower energy costs. As a result, CBUAE cut its 2025 inflation forecast from 1.9% to 1.5%. For 2026, inflation is expected to edge slightly higher to 1.8%, driven by base effects.
Stable liquidity, healthy deposits, and solid credit growth continue to support the economy, while the UAE’s banking system remains well-capitalized.
Real Estate and Tourism Driving Non-Oil Growth
The UAE’s residential property market remained a major driver:
- Residential sales rose 13.7% year-on-year in the first five months of 2025
- Off-plan sales jumped 14.3%
- Ready units rose 12.5%
However, rental transactions in Abu Dhabi and Dubai dipped by 4.2% year-on-year.
Tourism also delivered a strong boost. Dubai welcomed 9.9 million international visitors in H1 2025 (+6.1% year-on-year). Abu Dhabi and Dubai airports handled 15.8 million and 46 million passengers respectively, underscoring aviation’s role in growth.
Central Bank Policy and Interest Rates
In September, the CBUAE cut its Overnight Deposit Facility (ODF) base rate by 25 basis points from 4.40% to 4.15%, in line with the U.S. Federal Reserve’s policy shift.
The Dirham Overnight Interest Average (DONIA) narrowed its spread against the base rate, helped by the introduction of the Overnight Murabaha Facility, strengthening local money market dynamics.
Banking, Insurance, and Capital Markets
The UAE’s financial system continues to perform strongly:
- Banking sector: Deposits rose 13.1% annually, while loans grew 11.1%
- Capital adequacy ratio: 17.3% in Q2 2025
- NPL ratio: Declined to 1.7%, signaling stronger asset quality
The insurance sector also surged, with gross written premiums rising 14.5% year-on-year in H1 2025.
Capital markets remained buoyant, with the Dubai Financial Market index up 35.6% and the Abu Dhabi Securities Market up 8.1%. Credit default swap spreads for both emirates stayed low, underlining investor confidence.
