The UAE’s GDP is projected to grow by 5% year over year in 2025, continuing to outperform global GDP growth, which is forecast at 3.2.% – a modest increase on 3.1% in 2024.

 

UAE’s consumer spending is predicted to rise by 4.3% and consumer price inflation is likely to reach 2.3%, said Mastercard Economics Institute, which released ‘Economic Outlook 2025’, its annual report identifying the themes that will shape next year’s economic landscape. 

 

The global economy has managed through a series of shocks admirably over the past few years. The report anticipates 2025 to be defined by shifts in monetary and fiscal policy and a move toward equilibrium rates for growth and inflation.       

 

Robust non-oil economic activity

UAE’s 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.

 

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 USD-pegged currencies is fueling 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.

 

Key findings from the report

Pricing priorities: travel twins and meaningful experiences

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. 

 

In the travel economy, savvy travellers are increasingly turning to ‘travel twins’, which offer similar attractions and experiences as popular tourist hubs, but at lower prices or with smaller crowds. For example, in Southeast Asia, Lombok's stunning beaches and serene landscapes offer an alternative to the bustling crowds of Bali for UAE travellers.

 

In line with the continued growth of the experience economy in previous years, the region still observes a strong desire to prioritise 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% and 503% respectively compared to the same time in 2019. The latest data from September 2024 shows an increase of 326% and 279% 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.

 

Migration and money

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% to the population growth between 2019 and 2023. 

 

Migration also generates substantial remittances, which serve as a lifeline between expats working in thriving economies, such as the UAE, and their families from low- and middle-income communities in developing economies. The report highlighted a study from the World Bank that global remittances surged from $128 billion in 2000 to $857 billion in 2023, with an estimated growth of 3% in 2024 and 2025. Economic recovery and local reforms are expected to sustain remittance growth through 2025, while the continued digitisation of the payments industry allows recipients to shift to digital and mobile channels, resulting in considerable cost efficiencies, security and convenience.  

 

The rise of the SHEconomy

The global economy saw the ‘great resignation’ turn into the ‘great return’. To varying degrees across countries, there has been a return of workers, particularly in the younger cohort and, interestingly, women. The latest World Bank data shows that women’s representation in the UAE work force stands at 55.4%.

 

There are several potential explanations for this phenomenon. One, women’s labor force participation likely reflects the disproportionate job creation in female-dominated sectors, such as healthcare and education. In addition, the rise of remote work and the flexibility it brings tends to help women, who are often still the primary caregivers, as it makes it easier to raise children while working. Many of these dynamics will remain true in 2025, with positive implications for the economy due to driving consumption growth by increasing households’ disposable incomes. 

 

Global inflationary pressures continue to ease 

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% (removing the top and bottom 10% outliers).

 

The ‘Economic Outlook 2025’ report draws on a multitude of public and proprietary data sets, including aggregated and anonymised Mastercard sales activity, as well as models that are intended to estimate economic activity.--TradeArabia News service