Global Factors Shaping Growth Expectations for GCC Economies
The Gulf Cooperation Council (GCC) economies, particularly the United Arab Emirates (UAE), are poised for significant growth in the coming years, driven largely by global factors such as oil production and decisions made by the Organization of the Petroleum Exporting Countries (OPEC). As the world navigates a complex economic landscape, the interplay between these elements will be crucial in determining the trajectory of growth for the region.
Positive Growth Projections for the UAE
Recent forecasts indicate that the UAE’s GDP growth is expected to exceed 5 percent by 2025. Michael Bolliger, the Chief Investment Officer for Emerging Markets at UBS Global Wealth Management, shared this optimistic outlook during an online press briefing with the Emirates News Agency (WAM). This projection aligns closely with the International Monetary Fund’s (IMF) estimates, which maintain a GDP growth forecast of 4 percent for 2024, with an anticipated increase to 5.1 percent in 2025.
Bolliger emphasized that various global factors, particularly oil production and OPEC decisions, significantly influence growth expectations for GCC economies. He noted that supportive measures from China, adjustments in monetary policy, and cuts to the reserve requirement rate are expected to bolster markets and drive the global economy toward recovery. These factors are anticipated to have both direct and indirect impacts on the UAE’s economic performance, suggesting a sustained growth momentum.
The Role of Global Economic Conditions
The global economic landscape plays a pivotal role in shaping the growth expectations for the UAE and other GCC economies. Decisions made by the United States Federal Reserve regarding monetary policy are particularly influential. Bolliger predicts a reduction of approximately 150 basis points in interest rates by the end of 2025, which could further stimulate economic activity and investment in the region.
The IMF’s World Economic Outlook (WEO) also provides insights into the broader economic context. The WEO projects that the economies of the Middle East and Central Asia will grow by 2.4 percent in 2024 and 3.9 percent in 2025. Globally, growth is expected to remain stable but subdued, with estimates of 3.2 percent for both years. This backdrop underscores the importance of GCC economies adapting to global trends while leveraging their unique strengths.
Inflation and Economic Growth in Major Economies
As the UAE and other GCC countries navigate these global dynamics, inflation remains a critical concern. The IMF forecasts a decrease in global headline inflation from an average of 6.7 percent in 2023 to 5.8 percent in 2024 and further down to 4.3 percent in 2025. Advanced economies are likely to achieve their inflation targets sooner than emerging markets, which may influence investment flows and economic stability in the GCC.
In terms of economic growth in major economies, the WEO indicates that the U.S. economy is projected to grow by 2.8 percent in 2024, tapering to 2.2 percent in 2025. Meanwhile, the Eurozone is expected to experience modest growth, with projections of around 0.8 percent this year and 1.2 percent next year. These figures highlight the interconnectedness of global economies and the potential ripple effects on GCC growth.
World Bank Insights on UAE Economic Growth
The World Bank’s latest semi-annual MENA Economic Update forecasts that the UAE’s GDP will rise to 3.3 percent in 2024, followed by growth of 4.1 percent in both 2025 and 2026. This anticipated growth is attributed to a rebound in oil production and stable external conditions. The report also highlights the importance of the non-oil sector, which is projected to grow by 4.1 percent this year, driven by industries such as tourism, real estate, construction, transportation, and manufacturing.
Additionally, the World Bank projects a 1.2 percent increase in oil output for 2024, with a gradual reversal of voluntary production cuts expected to lead to a phased rise in output from January to September 2025. This recovery in oil production will be crucial for the UAE’s economic performance, given the sector’s historical significance.
Central Bank Projections and Non-Hydrocarbon Growth
In a separate forecast, the Central Bank of the United Arab Emirates (CBUAE) estimated that the country’s real GDP would grow by 3.9 percent in 2024 and 6.2 percent in 2025. The central bank anticipates strong performance in international trade throughout these years, further supporting economic growth.
The CBUAE’s June 2024 Economic Quarterly Review indicates that non-hydrocarbon GDP growth is expected to remain robust at 5.4 percent in 2024 and 5.3 percent in 2025. In contrast, the hydrocarbon sector is predicted to see a modest increase of 0.3 percent in 2024, followed by a significant 8.4 percent rise in 2025. This shift underscores the UAE’s ongoing efforts to diversify its economy and reduce reliance on oil.
Conclusion
As the UAE and other GCC economies navigate the complexities of global economic conditions, the interplay between oil production, OPEC decisions, and broader economic trends will be crucial in shaping growth expectations. With positive projections for GDP growth, a focus on non-hydrocarbon sectors, and supportive global factors, the region is well-positioned to continue its upward trajectory in the coming years. The ongoing commitment to diversification and adaptation will be key to sustaining this momentum and ensuring long-term economic resilience.
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