UAE's Real GDP To Accelerate To 5.3% In 2026, Central Bank Says

The UAE's real gross domestic product (GDP) is projected to grow by 4.9 per cent in 2025, accelerating to 5.3 per cent in 2026, according to the Central Bank of the UAE (CBUAE). The forecast reflects strong performance in non-hydrocarbon activities and a rebound in the hydrocarbon sector, supported by updated OPEC+ production plans.

In the first quarter of 2025, the UAE's real GDP grew by 3.9 per cent year-on-year (year on year), with non-hydrocarbon GDP expanding by 5.3 per cent year on year. Key drivers of this growth included manufacturing, financial services, construction, and real estate - sectors that continue to underpin the country's economic diversification efforts.

In its latest quarterly economic review released on Thursday, the CBUAE forecasted that the non-hydrocarbon sector - which includes manufacturing, financial services, construction, and real estate - is expected to grow by 4.5 per cent in 2025 and 4.8 per cent in 2026. Meanwhile, the hydrocarbon sector is forecast to expand by 5.8 per cent in 2025 and 6.5 per cent in 2026.

Inflation in the UAE eased to 0.6 per cent in Q2 2025, largely due to declining energy costs. Reflecting this trend, the central bank revised its inflation forecast for 2025 downward to 1.5 per cent from 1.9 per cent. Inflation is expected to edge up to 1.8 per cent in 2026, influenced by base effects.

Banking and financial sector remains resilient

Liquidity conditions remain stable, supported by healthy deposit growth and sustained credit expansion. The UAE banking system continues to be well-capitalised, with a capital adequacy ratio of 17.3 per cent in Q2 2025 and improved asset quality, as the net non-performing loan (NPL) ratio declined to 1.7 per cent.

Deposits rose by 13.1 per cent year on year, while the loan portfolio expanded by 11.1 per cent year on year. The insurance sector also showed strong performance, with gross written premiums increasing by 14.5 per cent year on year in H1 2025. The sector's capital strength improved, with the ratio of own funds to Minimum Capital Requirement rising to 423 per cent in Q2 2025.

Capital markets and real estate show strength

Capital markets continued to perform strongly, with the Dubai Financial Market's share price index surging 35.6 per cent year on year and the Abu Dhabi Securities Market General Index rising 8.1 per cent year on year. Credit default swap spreads for both emirates remained low, reflecting investor confidence.

The UAE's residential real estate market maintained momentum, with sales transactions increasing by 13.7 per cent year on year in the first five months of 2025. Off-plan sales rose by 14.3 per cent, while ready unit sales grew by 12.5 per cent. However, rental market activity softened, with transactions in Abu Dhabi and Dubai declining by 4.2 per cent year on year.

Tourism and aviation continue to thrive

Dubai welcomed 9.9 million international overnight visitors in H1 2025, marking a 6.1 per cent increase from the same period last year. Abu Dhabi and Dubai airports handled over 15.8 million and 46 million passengers, respectively, underscoring the strength of the aviation sector.

Global outlook and monetary policy

Globally, the IMF projects economic growth of 3.0 per cent in 2025, with the US expected to grow by 1.9 per cent and the euro area lagging at 1.0 per cent. Emerging markets are forecast to grow by 4.1 per cent in 2025, slowing slightly to 4.0 per cent in 2026.

The GCC region is set to outperform, with growth accelerating from 1.8 per cent in 2024 to 3.5 per cent in 2025, led by strong performances in the UAE and Saudi Arabia.

Global inflation is expected to decline from 5.7 per cent in 2024 to 4.2 per cent in 2025 and 3.6 per cent in 2026, driven by easing energy prices and supply chain normalization. However, persistent price pressures in housing and services, along with geopolitical uncertainties, are prompting central banks to adopt cautious policy stances.

In line with the US Federal Reserve, the CBUAE maintained its base rate at 4.4 per cent in July, lowering it to 4.15 per cent on Wednesday. The dirham overnight interest average (Donia) rate averaged 9 basis points below the base rate, down from 15 bps in the previous quarter, following the introduction of the overnight murabaha facility.

The CBUAE's balance sheet expanded by Dh43.6 billion in Q2 2025, primarily due to an increase in net foreign assets.

MENAFN18092025000049011007ID1110081509