UAE economy to boom thanks to real estate, tourism: OPEC

According to the Organization of the Petroleum Exporting Countries (OPEC), the United Arab Emirates continues to see solid economic growth, particularly in non-oil sectors such as real estate, tourism and manufacturing.

In its Monthly Oil Market Report (MOMR) for August 2024, OPEC highlighted the stable growth of the UAE economy, supported by strong economic activity in the domestic and international markets.

In June, the UAE saw a slight increase in the cost of housing, water, electricity, gas and other fuels, which account for more than 40% of the Consumer Price Index (CPI).

Those costs rose 6.7% year-on-year, from 6.6% in May. Food and beverage inflation remained relatively stable, with a slight increase to 2.4% in June from 2.3% in May.

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Internationally, the Central Bank of the United Arab Emirates recently signed currency swap agreements with Ethiopia, Seychelles and Indonesia.

These agreements aim to increase cross-border transactions and improve cooperation in payment systems. In addition, the UAE finalized a Comprehensive Economic Partnership Agreement (CEPA) with Mauritius, aimed at eliminating tariffs and increasing trade, thereby strengthening the UAE’s economic and diplomatic ties with Africa.

As a member of the Gulf Cooperation Council group, the UAE has also held talks with Turkey on a free trade agreement.

IMF forecast

OPEC’s optimistic outlook for the UAE is in line with previous forecasts by the International Monetary Fund (IMF), which predicted a 4 percent increase in the UAE’s gross domestic product (GDP) in 2024.

The IMF attributed the increase to strong activity in the tourism, construction, manufacturing and financial services sectors. The IMF also noted that strong foreign demand for real estate, combined with the UAE’s safe-haven status, had caused property prices and rents to rise sharply, contributing to domestic liquidity.

The UAE’s economic growth is expected to be further supported by higher GDP growth in the hydrocarbon sector, partly due to increased oil production following the adjustment of OPEC+ quotas for the UAE.

Inflation is forecast to remain around 2 percent, while fiscal and external surpluses should remain high, supported by relatively high oil prices.

The general government surplus is projected to be around 5 percent of GDP in 2024, with public debt continuing to decline towards 30 percent of GDP. The current account surplus is projected to be around 9 percent of GDP in 2024.

Price of crude oil

In the broader oil market, OPEC said Asian oil price volatility had pushed up Tapis’ premium over Dubai as sour crude rose at a slower rate compared to light sweet crude. The Brent-Dubai spread also widened, reflecting a stronger position for light sweet crude amid limited west-east arbitrage.

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

Crude oil futures prices rose last month, with all major oil indices posting steeper backwardation, indicating an improving global oil supply and demand outlook. The NYMEX WTI forward curve also strengthened, driven by a decline in U.S. commercial crude inventories, which contributed to a steeper forward curve front.

Oil demand

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

The UAE’s strategic economic policies and international partnerships continue to strengthen the country’s position as it seeks to maintain its growth trajectory and further diversify its economy in the face of uncertainty in the global oil market.

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