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UAE remains region’s strongest economic performer, says top banker

Dubai real estate set to continue strong momentum

The UAE economy has managed a soft landing and remains the region’s strongest performer, a senior official said.

“We expect growth in the UAE and wider GCC region to accelerate in 2025, as oil output expands and monetary policy eases. The UAE should benefit from its flexibility in oil production and a vibrant non-oil economy,” Michael Strobaek, global chief investment officer, Bank Lombard Odier, told Khaleej Times in an interview.

Pegs to the US dollar tie GCC monetary policy decisions to those of the Federal Reserve. Strobaek expects 150 basis points of rate cuts by regional central banks, mirroring those of the Fed in the next 12 months and supporting stability in the credit cycle. “Besides, despite the initiatives to deepen the region’s financial links to China and other emerging markets, the GCC countries have been maintaining significant US dollar reserves to defend their pegs. Although the countries’ international reserves have declined in the past few years, their levels still exceed those in many other regions. We see few imminent risks of a shift in policy on the currency pegs,” he added.

Strobaek expects Dubai’s real estate market to maintain its momentum, supported by the economic rebound and rate cuts, despite the strong gains over the past years. “We expect inflation in the UAE to behave well in 2025, given the stability in global goods prices and despite persistent housing inflation pressures. Of course, the UAE’s economic model makes its economy sensitive to geopolitical and global trade dynamics, particularly with China,” he added.

A series of growth-enhancing reforms articulated in National ‘Visions’, and ongoing diversification from hydrocarbons should support GCC economies in the long-run, Strobaek noted. “Should the GCC oil producers decide to gradually reverse their output cuts, it will be necessary to safeguard this transition with well calibrated fiscal policy tightening as deficits could widen further. Geopolitical risk in the wider region remains a major concern, and a well-diversified and balanced investment strategy is fundamental for regional investors,” he added.

Strobaek believes the geopolitical risk premium embedded in oil prices should remain contained. “Opec [the Organisation of Petroleum Exporting Countries] has significant spare capacity (estimated at 5 million barrels per day), which could offset potential supply losses. While further geopolitical escalation could temporarily pose upside risks, we see Brent oil prices remaining around $70/barrel in 12 months, with spare capacity sufficient to offset supply side risks,” he added.

Increased geopolitical risks, strong demand from central banks seeking to diversify their reserves, and a more volatile financial market environment have all played a key role in gold’s ascent so far this year. Strobaek expects this momentum to last, given Fed policy rates cuts and falling US real interest rates, a more neutral outlook for the US dollar, and hedging demand caused by geopolitical and US election-driven uncertainties. “We also expect flows into gold exchange-traded funds to resume as real rates decline. Near-term risks to gold after the US elections look broadly balanced, with a Republican win likely to trigger upside risks to our current forecasts if geopolitical tensions heighten, while a Democrat victory could lead to a limited initial downside risk but good longer-term performance on likely stronger declines in US real rates. Our 12-month price target is $2,900/ounce, and we recently increased our exposures to overweight levels in client portfolios,” he added.

Revamping of infrastructure is a powerful global trend Strobaek sees unfolding in the world economy. The transition of the current global economic model to a low-carbon, nature-positive, technology-embedded one, accelerated by demographic and geopolitical shifts, demands an overhaul of the world’s infrastructure. “This is a fundamental transformation of our society where long-term benefits outweigh the costs. Governments, institutions, and private investors all play a role in catalysing infrastructure projects, and the private sector is particularly well-positioned in the overhaul of power, transport, water, and communication infrastructures around the world. While energy and transportation infrastructure are cornerstones of modern economic infrastructure, water and communication infrastructure will require no less focus. At Lombard Odier, we have done significant research into infrastructure as one of six structural trends that are reshaping the global economy and opening new investment opportunities for global investors,” he added.