Central Bank of the UAE (CBUAE) forecasts that the Gross Domestic Product (GDP) of the UAE will increase by 4.9 percent in 2025 and 5.3 percent in 2026.
The projection signifies a very good performance in the non-hydrocarbon business and recovery in the hydrocarbon division, which is backed by new OPEC+ production strategies.
This is because the UAE’s real GDP increased by 3.9 per cent year-on-year (year on year) and non-hydrocarbon GDP increased by 5.3 per cent year on year in the first quarter of 2025.
Some of the major factors in this growth were manufacturing, financial services, construction, and real estate, which remain some of the sectors that shape the economic diversification in the country.
On Thursday, in its recent quarterly economic report, the CBUAE has predicted that the non-hydrocarbon sector, comprising manufacturing, financial services, construction, and real estate, will expand 4.5 per cent in 2025 and 4.8 per cent in 2026.
In the meantime, the hydrocarbon industry is expected to grow by 5.8 per cent in 2025 and 6.5 per cent in 2026.
UAE’s inflation rate declined to 0.6 percent in Q2 2025, but mainly because of the decrease in energy prices. Consistent with this pattern, the central bank adjusted its 2025 inflation projection to 1.5 percent from 1.9 percent. Base effects will likely see inflation rise to 1.8 percent in 2026.
Stabilization in financial and banking firms
Liquidity positions are sound, and this is backed by robust deposit growth and stable credit expansion. The banking system of the UAE remains well-capitalised, with a capital adequacy ratio of 17.3 percent in Q2 2025 and better asset quality, as the net non-performing loan (NPL) ratio dropped to 1.7 percent.
Its deposits increased by 13.1 percent compared to the previous year, and the loan portfolio increased by 11.1 percent compared to the previous year.
There was also a good performance in the insurance sector, where gross written premiums rose by 14.5 percent between years in H1 2025.
The capital strength of the sector increased, and the ratio of own funds to Minimum Capital Requirement increased to 423 percent in Q2 2025.
Stronger real estate and capital markets
Capital markets remained robust, with the share price index of the Dubai Financial Market increasing by 35.6 percent year on year and the share price index of the Abu Dhabi Securities Market General Index increasing by 8.1 percent year on year.
Both emirates’ credit default swap spreads were low, indicating confidence on the part of the investors.
The residential real estate market in the UAE continued to experience momentum, with sales transactions growing at 13.7 percent annually during the first half of 2025.
The off-plan sales increased by 14.3 percent, and the ready unit sales surged by 12.5 percent. Nevertheless, the activity of the rental market weakened and its transactions in Abu Dhabi and Dubai fell by 4.2 percent annually.
The aviation and tourism industries are still flourishing
Compared to the previous year, Dubai has received 9.9 million international overnight visitors in H1 2025, increasing by 6.1 percent. The aviation industry is robust as Abu Dhabi and Dubai airports processed more than 15.8 million and 46 million passengers, respectively.
International perspective and financial strategy
The IMF projects the global economic growth of 3.0 percent in 2025, with the US projected to experience 1.9 percent and the euro area projected to experience 1.0 percent. The emerging markets are expected to expand by 4.1 percent in 2025, but this is likely to decline to 4.0 percent in 2026.
With the effective contributions of the UAE and Saudi Arabia leading, the GCC region will show higher growth of 1.8 percent in 2024 and 3.5 percent in 2025.
The inflationary rates of the world are projected to reduce to 5.7 per cent in 2024, to 4.2 per cent in 2025, and 3.6 per cent in 2026, owing to the reduction in energy costs and normalization of the supply chain.
Thus, regional housing and services price pressures, coupled with geopolitical uncertainties, are causing central banks to take conservative policy positions.
On Wednesday, following the U.S. Federal Reserve, the CBUAE kept its base rate the same at 4.4 percent in July, but reduced it to 4.15 percent. The base rate was reduced to 9 basis points by the dirham overnight interest average (Donia) rate, which was 15 bps lower than it was in the last quarter, after the prominence of the overnight murabaha facility.
