The Central Bank of the United Arab Emirates (CBUAE) has adjusted its inflation forecast for 2024 due to lower-than-expected increases in commodity costs, incomes, and rents.
According to the bank’s Economic Quarterly Review for June 2024, the inflation rate is now expected to average 2.3 per cent, down from the previously estimated 2.5 per cent.
In Dubai, headline inflation eased to 3.4 per cent in the first quarter of 2024, below the global average. However, it rose to 3.9 per cent in April, driven by significant increases in transport prices.
Regarding inflation trends, housing costs, which include rent, water, electricity, gas, and other fuels and constitute 40.7 per cent of the consumer basket, continued to rise, reaching an annual increase of 6.5 per cent in April.
Meanwhile, food and beverage inflation decreased to 2.3 per cent in April, down from an average of 3.3 per cent in the first quarter of 2024.
Looking ahead, the central bank anticipates a similar inflation rate of 2.3 per cent in 2025, largely influenced by non-tradeable components of the consumer basket, reflecting a broader trend of moderated cost increases across various sectors of the economy.
Despite the revised inflation forecast, the UAE’s economic outlook remains strong. The CBUAE maintains its projection for the country’s real GDP growth at 3.9 per cent in 2024, with expectations for a significant acceleration to 6.2 per cent in 2025. This growth is supported by robust performance in both the hydrocarbon and non-hydrocarbon sectors.
Non-hydrocarbon GDP is forecasted to grow by 5.4 per cent in 2024 and 5.3 per cent in 2025, driven by sectors such as real estate, tourism, hospitality, and transportation.
The hydrocarbon sector, which saw marginal growth of 0.3 per cent in 2024, is expected to expand by a substantial 8.4 per cent in 2025.
In economic metrics, the UAE economy expanded by 4.3 per cent year-on-year in the fourth quarter of 2023, surpassing the 2.5 per cent growth recorded in the third quarter. This growth was driven by accelerated non-hydrocarbon growth and improved performance in the hydrocarbon sector, which together constitute about 75 per cent of the UAE’s GDP.
The CBUAE also reported a positive consolidated fiscal balance of AED 85.6B in 2023, equivalent to 4.5 per cent of GDP.
Despite a 13.9 per cent decline in total revenue to AED 526.1B (27.9 per cent of GDP), government expenditure increased by 3.1 per cent to AED 440.5B (23.3 per cent of GDP).
The introduction of a corporate income tax is expected to further strengthen the sustainability of the fiscal sector.
