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UAE economy to be ‘star performer’ in the region — Swiss bank

Lombard Odier sees a buoyant GCC outlook, in the absence of any geopolitical escalation in the Middle East

A favourable oil output agreement with the Organisation of the Petroleum Exporting Countries (Opec) and a thriving service sector should make the UAE the Middle East’s star performer in the next few years, a major investment bank said.

According to Lombard Odier’s 2025 Outlook, the country’s real estate market in particular should continue performing strongly thanks to a robust influx of talents from overseas, booming tourism, and a more favourable global interest rate environment. “The country’s healthy twin surpluses will also safeguard its economy from any temporary shock,” the report, authored by Dr Nannette Hechler-Fayd’herbe, head of investment strategy, sustainability and research, CIO EMEA, said in the report. However, the worrisome situation between Israel and Iran will be a key risk to watch. “Any de-escalation of conflict in the Middle East under the influence of the new US administration would create tailwinds for the economy and GCC assets,” the report by the Swiss private bank said.

The reversal of voluntary oil production cuts from Opec is expected to boost GCC real GDP growth from below two per cent in 2024 to above four per cent in 2025. “We also expect GCC central banks to follow the Fed with rate cuts, given well-behaved inflation,” Hechler-Fayd’herbe said.

Although this is a favourable backdrop, the implied downtrend in oil prices resulting from increased supply could nudge Saudi Arabia back to fiscal and current account deficits despite a sharp rebound in real GDP growth. This is because current crude oil prices are well below the level required to balance the country’s budget. “In the medium-term, however, we expect these adjustments to be manageable, as recent reforms in tax, labour, and immigration will add resilience to the economy,” Hechler-Fayd’herbe said.

Eurozone economies’ fortunes will continue to differ in 2025, while the prospect of US tariffs creates downside risks for the euro area. “We anticipate the ECB cutting rates to 1.25 per cent, or further if growth slows very sharply, and the euro weakening against the US dollar in response. Eurozone equities should continue to underperform versus global equities, although we note catch-up potential for the French stock market. In fixed income, we believe German Bunds will outperform. We expect French sovereign bonds to continue offering yields roughly approximate to those available on Spanish debt and see no significant potential for the difference between French and German government yields to narrow. Overall, we prefer eurozone corporate over sovereign bonds,” Hechler-Fayd’herbe said.

Central and Eastern European countries that led the global monetary easing cycle will see disinflation run its course and growth rebound in 2025. In Poland’s case, the central bank will keep rates on hold in the near term due to worries about sticky core inflation, but we expect it to resume rate cuts in early 2025 when visibility on regulated prices improves. In Hungary and Czechia, monetary easing will come to an end as inflation begins to rebound into the new year.

The government of South Africa has seen a positive start since the general election, with the allocation of ministerial positions to the second largest, broadly centrist party Democratic Alliance reassuring markets. The government’s latest medium-term budget policy statement kept its primary surplus guidance (ie higher income than current spending) despite modest revenue setbacks. A confluence of favourable developments has allowed the country to avoid electricity blackouts for an extended period despite heavier winter demand. “We expect the South African economy to see a modest growth rebound to around 1.5 per cent in the medium term, with inflation staying within the central bank’s target range. This points to two more rate cuts of 25 bps this cycle, which should support South African credit and equities. The key risk for this forecast will be the rand, which has experienced significant volatility after the US election,” Hechler-Fayd’herbe said.