UAE economy to grow robustly on back of real estate, tourism: OPEC

The UAE continues to demonstrate robust economic growth, particularly in its non-oil sectors such as real estate, tourism, and manufacturing, according to the Organisation of the Petroleum Exporting Countries (OPEC).

In its August 2024 Monthly Oil Market Report (MOMR), OPEC highlighted the steady expansion of the UAE’s economy, supported by strong domestic and international economic activities.

In June, the UAE saw a slight uptick in housing, water, electricity, gas, and other fuel costs, which make up over 40 per cent of the Consumer Price Index (CPI).

These costs increased by 6.7 per cent year-on-year, up from 6.6 per cent in May. Food and beverage inflation remained relatively stable, with a marginal increase to 2.4 per cent in June from 2.3 per cent, in May.

CEPA

On the international front, the UAE Central Bank recently signed currency swap agreements with Ethiopia, the Seychelles, and Indonesia.

These agreements are designed to enhance cross-border transactions and improve payment system cooperation. Additionally, the UAE finalised a Comprehensive Economic Partnership Agreement (CEPA) with Mauritius, aimed at eliminating tariffs and boosting trade, thereby strengthening the UAE’s economic and diplomatic ties with Africa.

As part of the GCC grouping, the UAE also held talks with Turkey towards a free-trade pact.

IMF forecast

OPEC’s optimistic outlook for the UAE aligns with earlier forecasts by the International Monetary Fund (IMF), which predicted a 4 per cent expansion of the UAE’s gross domestic product (GDP) in 2024.

The IMF attributed this growth to robust activity in the tourism, construction, manufacturing, and financial services sectors. The IMF also noted that strong foreign demand for real estate, coupled with the UAE’s safe-haven status, has driven rapid increases in housing prices and rents, contributing to domestic liquidity.

The UAE’s economic growth is expected to be further bolstered by higher hydrocarbon GDP growth, partly due to increased crude oil production following the UAE’s OPEC+ quota adjustment.

Inflation is forecasted to remain contained at around 2 per cent, while fiscal and external surpluses are expected to remain strong, supported by relatively high oil prices.

The general government surplus is projected to be around 5 per cent of GDP in 2024, with public debt on track to decline further towards 30 per cent of GDP. The current account surplus is projected at approximately 9 per cent of GDP in 2024.

Oil price

In the broader oil market, OPEC reported that oil price movements in Asia have seen the Tapis premium over Dubai widen, as the value of sour crude increased at a slower pace compared to light sweet crude. The Brent-Dubai differential also rose, reflecting a stronger position for light sweet crude amid limited west-to-east arbitrage.

In July, the Tapis-Dubai spread widened by $2.56 month-on-month to an average of $4.92 per barrel.

Oil futures prices strengthened last month, with all major crude benchmarks showing steeper backwardation, indicating an improved global oil supply and demand outlook. The forward curve of NYMEX WTI also strengthened, driven by a decline in US commercial crude oil stocks, which contributed to a steeper front end of the forward curve.

Oil demand

Despite these positive indicators, OPEC revised its forecast for global oil demand growth in 2024, citing weaker-than-expected data from the first half of the year and softer expectations for China. The organisation also reduced its outlook for the following year, reflecting concerns about the global economic environment.

The UAE’s strategic economic policies and international partnerships continue to position the country strongly, as it seeks to sustain its growth trajectory and further diversify its economy amidst global oil market uncertainties.

Read: OPEC cuts 2024 oil demand growth forecast, citing China