A. SREENIVASA REDDY (ABU DHABI)
UAE real GDP expanded by 4.5% year-on-year (YoY) in Q2 2025, driven by solid non-hydrocarbon activity, according to the Central Bank of the UAE’s (CBUAE) latest Quarterly Economic Review. The growth of real GDP in Q1 2025 was 3.9%.
For the full year, the Central Bank projects real GDP growth of 5% in 2025, supported by a 4.9% expansion in the non-hydrocarbon sector and a 5.4% rebound in hydrocarbon output. The recovery in hydrocarbon activity follows a faster-than-expected reversal of production cuts after the latest OPEC+ quota increases.
The CBUAE expects growth to accelerate further in 2026, with real GDP projected at 5.2%. This is driven by 4.7% growth in the non-hydrocarbon sector and 6.7% growth in the hydrocarbon sector. “The medium-term outlook is broadly balanced, supported by stronger-than-expected non-hydrocarbon activity, continued adoption of artificial intelligence that could boost productivity, and more favourable global conditions,” the CBUAE observed.
Inflation remained subdued, although it edged higher in the third quarter. Headline inflation rose to 1.1% YoY in Q3 2025, up from 0.6% in Q2, mainly reflecting a reduced deflationary impact from transportation prices and a stronger contribution from household goods. For the first nine months of 2025, inflation averaged 1%, pointing to a generally stable price environment despite quarterly fluctuations. At the emirate level, Abu Dhabi recorded an average inflation rate of 0%, while Dubai averaged 2.7% over the same period.
The Central Bank revised its inflation forecast for 2025 downward to 1.3% from the 1.5% projected in its September review, citing falling transportation costs and easing non-energy commodity prices. Inflation is expected to rise modestly to 1.8% in 2026, largely due to base effects from lower inflation in 2025.
Oil production trends supported the improved outlook. During the first nine months of 2025, crude oil production averaged 3.035 million barrels per day, representing a 3.7% increase compared with the same period a year earlier. The CBUAE noted that the rebound became particularly evident from June, as actual production adjusted more rapidly to higher quotas. Production reached its highest level in September within the nine-month period, recording YoY growth of 14.1%.
Domestic gas production also strengthened, expanding by 5% in Q3 2025 after a YoY decline of 2.6% in Q2. Gas output was supported by firm demand, with gas sales rising by 4.1% YoY in the third quarter.
Non-hydrocarbon activity remained the main engine of growth. Real non-hydrocarbon GDP rose by 5.3% YoY in Q1 2025 and accelerated to 6.1% YoY in Q2. The five largest contributors to non-oil growth in H1 2025 were financial and insurance services, manufacturing, construction, wholesale and retail trade, and real estate activities.
Labour market indicators pointed to stronger business activity without generating significant inflationary pressures. As of September 2025, the average number of employees covered by the Wages Protection System increased by 13.9% YoY, while average wages rose marginally by 0.3% YoY. “Overall, employment developments suggest stronger business activity, with limited inflation risks, as average wages remain stable,” the CBUAE said.
Fiscal performance remained positive, though the surplus narrowed. The general government budget recorded a surplus of 3.8% of GDP in H1 2025, compared with 6.4% a year earlier. “The narrowing surplus reflects a combination of broadly stable revenue performance alongside faster growth in public expenditure,” the CBUAE report said. Total revenue increased marginally by 0.4% YoY but declined slightly as a share of GDP. Tax revenue fell, partly offset by higher social contributions and a sharp rise in other revenues. Total expenditure rose by 12.7% YoY, driven by higher spending on wages, goods and services, interest payments and capital expenditure.
The banking sector continued to post strong performance. Total banking system assets increased by 18.1% YoY to Dh5.2 trillion by the end of Q3 2025. Lending grew by 14.7% YoY, led by retail and private corporate credit, while deposits rose by 15.4% YoY. Capital adequacy stood at 17.4%, and asset quality improved further, with the net non-performing loans ratio declining to 1.6%.
Activity in key sectors of the real economy also remained robust. The residential real estate market gained further momentum through the first three quarters of 2025, with strong growth in sales and mortgage transactions in both Abu Dhabi and Dubai, reflecting sustained confidence from residents and international investors. Aviation activity expanded steadily, with Abu Dhabi and Dubai airports recording higher passenger volumes, reinforcing the UAE’s position as a major global travel and business hub.