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Bigger Opec+ quota set to boost UAE’s growth in 2024

Non-oil business activity was the strongest in four years

Propelled by a bigger Opec+ quota from the second quarter and a turbocharged non-oil business activity, the UAE is set to boost its economic growth in 2024 after what appeared to be a weak performance in 2023 compared to the previous year.

The UAE’s oil output will be stronger in 2024 than in 2023 as the country negotiated a higher Opec+ quota from the second quarter 2024, according to FocusEconomics Consensus Forecast.

In the first 11 months of 2023, the UAE as a whole pumped 3.6 per cent less crude oil than it did in the same period in 2022, after agreeing with Opec+ earlier in 2023 to curb output. “More positively, non-oil business activity was the strongest in four years in October and remained rapid in November and December,” economists at FocusEconomics said.

The UAE has committed to cut oil production by 0.16 million barrels per day in Q1 2024 (roughly 5.0 per cent of average output in 2023), dampening activity in the quarter, but activity this year will be boosted by a higher Opec+ quota from June along with a projected recovery in world trade.

The UAE’s GDP growth was the fastest in over 10 years in 2022, but then appeared to weaken in 2023. The economy of Abu Dhabi expanded more than three times slower in January-September than in 2022, while Dubai, the second-largest, also grew more softly in January-June, said Matthew Cunningham, Mena economist at FocusEconomics.

The UAE’s GDP growth weakened greatly in 2023, but should rise above the 2013–2022 10-year average in 2024. “Regional instability is a downside risk, while Opec+ quota changes are a risk in both directions," analysts said. FocusEconomics panelists see the Arab world’s second-largest economy expanding 3.7 per cent in 2024, which is unchanged from one month ago, and expanding 4.0 per cent in 2025.

Inflation in Dubai fell to 3.3 per cent in November from 4.3 per cent in October. Recent data shows that, in the UAE as a whole, inflation fell to 1.0 per cent in Q2 2023 from 3.6 per cent in the prior quarter.

In 2024, UAE inflation is set to ease from 2023 on a higher base effect and past interest rate hikes. Food price spikes pose an upside risk. FocusEconomics panelists see consumer prices rising 2.3 per cent on average in 2024, which is unchanged from one month ago, and rising 2.1 per cent on average in 2025.

Cunningham noted that the priority of the UAE’s monetary policy is to maintain the dirham’s peg against the dollar. Thus, the country largely follows any monetary policy move from the US Fed. In 2024, the UAE should lower the base rate along with the Fed.

FocusEconomics panelists see the base rate ending 2024 at 4.32 per cent and ending 2025 at 3.23 per cent.

In the Middle East and North Africa region, the GDP growth is expected to improve in 2024 from 2023, aided by strong government investment. "However, our panellists have downgraded their 2024 forecasts for four consecutive months as crude production is set to recover less strongly than earlier anticipated," the FocusEconomics report said.