The UAE economy’s growth in 2023 was stronger than the most recent estimate, driven by non-oil sector growth.

The Arab world’s second-largest economy expanded by 3.6 per cent last year, compared to the 3.1 per cent estimated by the Central Bank of the UAE (CBUAE) in the fourth quarter, the banking regulator said.

Non-oil gross domestic product expanded by 6.2 per cent during the period, it said in its annual report.

It, however, downwardly revised its growth projections for 2024 to 3.9 per cent from the previous estimate of 4.2 per cent.

Growth is projected to accelerate to 6.2 per cent in 2025, as oil production is forecast to increase significantly due to the Opec+ decisions and continued expansion of the non-oil sector, according to the bank.

This month, Opec+ agreed to extend output cuts of 3.66 million barrels per day, which were initially planned to end this year, until the end of 2025.

However, the group plans to gradually unwind the voluntary curbs of 2.2 million bpd on a monthly basis from October 2024 until September 2025, but said that “the monthly increases can be paused or reversed subject to market conditions”.

Next year, oil GDP is expected to expand by 8.4 per cent with production levels in line with the Opec+ policy.

“The CBUAE projects that the UAE’s real GDP will increase … in 2024, driven by a robust growth of 5.4 per cent in the non-oil sector,” Sheikh Mansour bin Zayed, Vice President, Deputy Prime Minister and Chairman of the Presidential Court, said.

Sheikh Mansour also added the UAE is “committed to sustainability and effectively combating climate change, demonstrated by the successful hosting of Cop28″.

The non-oil sector continued to perform strongly in 2023, the UAE Central Bank said.

“After recording a growth rate of 7.1 per cent in 2022, non-oil GDP expanded by 6.2 per cent in 2023.,” it said.

“The strong performance reflects a variety of factors, including the recovery in global travel and tourism in the aftermath of the full removal of Covid-19-related restrictions, the strong performance in real estate and construction sectors propelled by migration inflows.”

For 2024, the Central Bank projects non-oil GDP growth to slow to 5.4 per cent due to “a stabilisation of migration inflows, slowing growth in key trading partners, and carryover effects from a strong 2023”.

In 2025, non-oil GDP growth is expected to remain steady at 5.3 per cent, it said, adding that “successful reform implementation and a decline in interest rates in advanced economies, which could boost external demand and trigger capital inflows in emerging markets, pose upside risks to non-oil growth”.

On the other hand, downside risks include new supply disruptions associated with geopolitical shocks, upticks in inflation that could lead to persistently tight monetary conditions and depressed external demand, as well as a deepening of property sector woes in China, it added.

The latest growth projections come as the UAE’s economy continued to rebound strongly from the coronavirus pandemic-induced slowdown on the back of government reforms and higher oil prices.

Earlier this year, the International Monetary Fund projected faster UAE growth on economic diversification boost.

The overall real gross domestic product of the UAE is expected to expand by an annual 4 per cent in 2024, the fund said in May at the conclusion of an article IV consultation with the country.

Minister of Economy Abdulla bin Touq expects the country’s economy to expand by 5 per cent this year.

The country’s non-oil sector, which accounts for about 73 per cent of GDP, will underpin growth this year and the next, he told state news agency Wam in February.

Meanwhile, inflation in the UAE declined to 1.6 per cent in 2023 from 4.8 per cent in 2022, on the back of lower energy prices, that led to a decline in transportation prices of 5.6 per cent during the period, the UAE central bank said.