UAE central bank adjusts inflation forecast for 2024

The Central Bank of the United Arab Emirates (CBUAE) revised its inflation forecast for 2024, citing lower-than-expected increases in commodity costs, incomes, and rents.

The inflation rate is now projected to average 2.3 per cent, down from the previously estimated 2.5 per cent, according to the bank’s June 2024 Economic Quarterly Review.

In Dubai, headline inflation moderated to 3.4 per cent in Q1 2024, below the global average. However, it rose to 3.9 per cent in April, driven by significant increases in transport prices.

Inflation trends: The rise and fall

Housing costs, including rent, water, electricity, gas, and other fuels, which represent 40.7 per cent of the consumer basket, continued to climb, reaching 6.5 per cent on an annual basis in April.

Meanwhile, in April, food and beverage inflation declined to 2.3 per cent, down from an average of 3.3 per cent in Q1 2024.

The central bank anticipates a similar inflation rate of 2.3 per cent in 2025, largely driven by non-tradeable components of the consumer basket. The adjustment reflects a broader trend of moderated cost increases across various sectors of the economy.

Robust outlook for the economy

Despite the adjusted inflation forecast, the UAE’s economic outlook remains robust. The CBUAE maintains its projection for the country’s real GDP growth at 3.9 per cent in 2024, expecting it to accelerate significantly to 6.2 per cent in 2025. This growth is underpinned by a strong performance in both the hydrocarbon and non-hydrocarbon sectors.

Non-hydrocarbon GDP is expected to grow by 5.4 per cent in 2024 and 5.3 per cent in 2025, reflecting continued strength in sectors such as real estate, tourism, hospitality, and transportation.

The hydrocarbon sector, which experienced a marginal growth of 0.3 per cent in 2024, is forecast to expand by a substantial 8.4 per cent in 2025.

Economic metrics

In Q4 2023, the UAE economy expanded by 4.3 per cent year-on-year, surpassing the 2.5 per cent growth recorded in the third quarter. This increase was driven by accelerated non-hydrocarbon growth and improved hydrocarbon sector performance, which together account for around 75 per cent of the UAE’s GDP.

The CBUAE also reported a positive consolidated fiscal balance of Dhs85.6bn in 2023, equivalent to 4.5 per cent of GDP.

Despite a 13.9 per cent decline in total revenue to Dhs526.1bn (27.9 per cent of GDP), government expenditure rose by 3.1 per cent to Dhs440.5bn (23.3 per cent of GDP).

The introduction of a corporate income tax is expected to further bolster the fiscal sector’s sustainability.

Read: UAE banking sector’s liquid assets rise to Dhs786.6bn in Q1 2024