UAE Economic Forecast

Year-on-year GDP growth should have softened further in Q2 after a projected slowdown in Q1: GDP in Abu Dhabi—which has by far the largest economy of the seven emirates—expanded 3.9% year on year in Q1 (Q4 2022: +5.9% yoy). Nationwide, oil production contracted over 3% year on year in Q2—the steepest decline in two years—largely due to a voluntary production cut from 1 May. As such, the oil sector likely dragged on overall GDP, while the non-oil sector remained the engine of growth: The non-oil private-sector PMI was higher in Q2 than in Q1 amid improving demand. Moving into Q3, the dynamics remained largely unchanged from Q2: In July, year-on-year crude production fell at the sharpest pace in 27 months, the PMI remained comfortably in expansionary terrain and inflation in Dubai softened, which should support spending despite higher interest rates.

Softer price increases for food and a steeper decline in prices for transport pushed inflation in Dubai down to a 20-month low of 1.0% in July (June: 2.1%). Countrywide data is unavailable for H1 2023, but in line with the trend in Dubai, inflation should have eased so far in 2023. Tighter monetary policy and slowing activity should keep a lid on price increases ahead.