UAE’s GDP is projected to grow by 5% year over year

The UAE’s gross domestic product (GDP) in 2025 is projected to grow by five per cent year over year, continuing to outperform global GDP growth, which is forecast at 3.2. per cent – a modest increase on 3.1 per cent in 2024, a study showed on Monday.

According to the Mastercard Economics Institute’s ‘Economic Outlook 2025’, consumer spending in the country is predicted to rise by 4.3 per cent, and consumer price inflation is likely to reach 2.3 per cent.

This growth is underpinned by robust non-oil economic activity. “In line with the UAE Centennial 2071, a comprehensive vision for the future of the nation, economic diversification efforts will continue as the government leverages strong balance sheets to finance investment in infrastructure. Private sector investment should also benefit from lower interest rates, supporting employment and domestic consumption. Population growth is an important driver of economic activity, and particularly private consumption, for the region, even if the pace moderates,” a statement said.

Tourism is likely to remain a bright spot for the region’s economies. The GCC’s strong push to develop its tourism offerings has positioned it as one of the fastest-growing destinations in the world. In addition, the strength of the region’s US dollar-pegged currencies is fuelling the demand for outbound travel.

“With ongoing public and private investment driving solid non-oil GDP growth, the GCC region continues to outperform most global markets. Following a successful 2024, the global economy sets course for another year of expansion, shaped by changing fiscal and monetary policies. As the business cycle matures, the structural forces that have shifted the landscape will become more apparent, helping define the new landing place for economies around the world,” said Khatija Haque, chief economist, EEMEA, Mastercard.

As the prices of goods and services increase, consumers may adjust their buying intentions. For essential goods and services without many substitutes, quantities purchased are unlikely to fall much in response to an increase in prices. “However, for those with varied price levels available, we may see ‘trading-down’ – opting for more affordable versions of the product or experience,” the statement said.

In line with the continued growth of the experience economy in previous years, the region still observes a strong desire to prioritize spending on “big moments” over material things. This trend is especially prevalent in Saudi Arabia and Qatar, where the spending on meaningful experiences as of February 2024 grew by 451 per cent and 503 per cent respectively compared to the same time in 2019. The latest data from September 2024 shows an increase of 326 per cent and 279 per cent respectively. “This surge is driven by the countries’ focus on expanding their selection of leisure and entertainment facilities as well as the hosting of global sports events that are attracting large crowds from around the world,” Mastercard said.

The last few years revealed significant shifts in people and, by extension, capital. Inbound migration greatly enriches the region’s human capital. In the UAE, net migration contributed 10.8 per cent to the population growth between 2019 and 2023.

Inflation across major economies eased significantly in 2024, underpinned by lower prices of durable goods and reduced inflation for nondurable goods. While upside risks to good prices remain due to tariffs, moderating wage growth is expected to decrease services inflation. The Mastercard Economics Institute predicts trimmed global inflation at 3.2 per cent (removing the top and bottom 10 per cent outliers).