CBUAE Revises Down Growth Forecast for UAE for 2025

The Central Bank of the UAE (CBUAE) said that the GCC region’s economic growth is forecast to significantly accelerate from an estimated 1.8% in 2024 to 3.2% in 2025, largely driven by stronger growth in the UAE and Saudi Arabia.

However, the overall growth still represents a downward revision of 0.3 pp compared to previous forecasts, mainly driven by lower hydrocarbon revenues and, to some extent, non-hydrocarbon sectors, the central bank said in its latest quarterly economic review.

Nevertheless, non-hydrocarbon sectors (financial services, trade and tourism), remain resilient, benefiting from ongoing economic diversification reforms. Infrastructure projects continue to play a key role in supporting diversification in the region.

In 2026, growth is expected to accelerate significantly to 4.3%, driven by a recovery in oil production coupled with the robust performance of the non-hydrocarbon sector, the CBUAE report said.

Coming to the UAE, the CBUAE said that the real GDP is expected to grow by 4.4% in 2025, up from 4% in 2024, before accelerating further to 5.4% in 2026.

The projections for both this year and next year were down 0.3 percentage points from the CBUAE’s last forecast in March, when it predicted 4.7% growth and 5.7% growth in 2025 and 2026, respectively. The CBUAE attributed the downward revision to the effects of slower global economic activity, increased uncertainty and falling oil prices.

The growth in real GDP is driven by the expected robust dynamism of the non-hydrocarbon activities and a robust increase in the hydrocarbon sector following updated OPEC+ production plans, the CBUAE said.

The non-hydrocarbon GDP is expected to grow by 4.5% in both 2025 and 2026, while the hydrocarbon sector is projected to grow by 4.1% in 2025, followed by a further expansion of 8.1% in 2026.

Inflation in the UAE stood at 1.4% in Q1 2025, largely due to lower energy costs, but the CBUAE has slightly revised its inflation forecast for 2025 downward to 1.9% from 2%. This adjustment is attributed mainly to a continuous downward trend in transportation costs. The inflation forecast for 2026 has also been lowered to 1.9% from 2.1%.

Tourism Going Strong

Dubai’s tourism sector maintained strong momentum in Q1 2025, attracting 7.15 million overnight visitors, representing a 7% increase compared to Q1 2024, and a hotel occupancy rate of 83%. This reflects a solid start that reinforces the city’s position as a premier global destination.

In line with the Fed’s May meeting, the CBUAE kept its key policy rate (Base Rate) unchanged in May at 4.4%. The Dirham Overnight Interest Average (DONIA) rate remains around 15 basis points below the Base Rate on average, reflecting sustained excess system-wide liquidity.

Favourable liquidity and funding conditions in the UAE banking system were supported by a double-digit deposit growth of 10.9% y-o-y, while the banking system’s lending grew 9.4% y-o-y, amid supportive domestic economic conditions.

Capital markets have remained on a solid growth path. In Q1 of 2025, Dubai Financial Market’s (DFM) share price index rose by 22.6% y-o-y, and the Abu Dhabi Securities Market General Index increased by 1.9% y-o-y.

The insurance sector demonstrated robust growth, with gross written premiums, the number of insurance policies and gross paid claims all rising by 13.8%, 17.4% and 18.3% y-o-y in Q1 2025, respectively.

Global Economic Growth

The global economy is projected to grow by 2.8% in 2025, according to the latest International Monetary Fund (IMF) forecast, marking a 0.5 percentage point downward revision from the January estimate.

The IMF has also significantly revised down its US GDP growth forecast by 0.9 percentage points to 1.8% for 2025, citing heightened policy uncertainty, trade tensions, and expected weaker consumption growth as the main drivers of the revision. Growth is expected to decline further to 1.7% in 2026.

For other advanced economies, growth is projected to average 1.4% in 2025, with the euro area lagging at 0.8% due to manufacturing weaknesses.

Meanwhile, growth in emerging markets and developing economies (EMDEs) is expected to slow to 3.7% in 2025, with a slight increase to 3.9% in 2026. EMDEs remain highly vulnerable to global uncertainty and trade tensions, along with regional disparities, the CBUAE said.