UAE Economy Set for Sustained Growth Through 2027 Amid Non-Oil Expansion and Banking Sector Resilience

 The United Arab Emirates (UAE) is poised to maintain strong economic growth through 2027, supported by non-hydrocarbon activities, progressive reforms, and a resilient banking sector, according to a recent report by S&P Global Ratings. The report underscores the UAE's ability to navigate economic challenges and adapt to evolving global conditions while leveraging its strategic policies and diversified economy.



Economic Growth Anchored by Non-Hydrocarbon Activity

S&P projects that the UAE’s real GDP growth will remain robust between 2025 and 2027, buoyed by a resurgence in hydrocarbon production and dynamic non-hydrocarbon sectors. Key drivers of this growth include:

  • Business-Friendly Policies: The UAE's regulatory environment continues to attract businesses and investors. Initiatives like a low corporate tax regime and simplified visa policies, including long-term residency programs, have boosted economic activity and population growth.
  • Economic Resilience: The UAE has consistently demonstrated its ability to manage risks associated with regional geopolitical tensions and fluctuations in oil prices, ensuring stable economic performance.
  • Diversified Economy: The focus on non-oil sectors has reduced the nation's reliance on hydrocarbons, fostering stability and long-term growth.

Banking Sector: A Pillar of Economic Stability

The UAE’s banking sector has emerged as a key contributor to the country’s economic strength. According to S&P, banks have benefited from a favorable domestic economy, resulting in improved metrics across the board:

  1. Asset Quality and Credit Losses:

    • Improved economic conditions have led to lower non-performing loans (NPLs).
    • Stage 3 loans for the top 10 banks dropped to 4% of gross loans as of September 2024, down from a peak of 6.1% in 2021.
    • Higher recoveries of written-off loans have further reduced net credit losses.

  2. Lending Growth:

    • Lending activity is expected to expand due to monetary policy easing and a supportive economic environment.
    • Increased deposits over the past three years have bolstered banks' growth momentum.

  3. Profitability and Capital Buffers:

    • Banks saw strong profitability during recent periods of monetary tightening, with higher interest rates expanding margins.
    • While profitability may dip slightly in 2025 as interest rates normalize, it will remain high, supported by strong capital buffers and government backing.

Challenges and Mitigation

Despite the optimistic outlook, the UAE faces potential challenges:

  • Geopolitical Risks: Sudden escalations in regional tensions could impact economic activity.
  • Oil Price Volatility: A significant drop in oil prices could pose risks, though the UAE’s diversified economy provides a cushion.

S&P highlights that the UAE’s demonstrated resilience during past periods of geopolitical instability and lower oil prices will help mitigate these risks.

The Role of Non-Oil Sectors in Sustained Growth

The UAE’s non-oil economy continues to play a pivotal role in driving economic stability and growth:

  • Solid performance across non-oil sectors is improving the banking system's asset quality indicators.
  • Rate cuts and a favorable economic environment are enhancing underlying asset quality, further reducing credit risks.
  • Strategic investments in infrastructure, tourism, and technology are creating new opportunities for sustainable growth.

Conclusion: A Model for Resilience and Growth

The UAE’s strategic focus on diversification, coupled with robust banking sector performance and supportive economic policies, positions it as a regional and global leader in economic resilience.

Through sustained investments in non-oil sectors, innovation, and business-friendly reforms, the UAE is set to navigate potential challenges while charting a path of sustainable growth. As the nation continues to adapt to global economic trends, its strong fundamentals and visionary leadership will ensure long-term prosperity for its economy and people.

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