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UAE growth expansion beats expectations

7 October 2025

 

Bolstered by sustained economic diversification and a steady rise in exports, the UAE remains poised for robust growth well above the global average of 3% in 2025 and beyond its own growth projections.

Following an estimated 4% real GDP expansion in 2024, the UAE economy is expected to accelerate its expansion to 4.8% in 2025, according to the Washington-based IMF. This is being driven by both strong non‑hydrocarbon activity and a rebound in oil output as Opec+ production cuts recede.

Both GDP figures represent a further step up from the IMF’s April 2025 estimates of 3.8% and 4% for 2024 and 2025 respectively, with the UAE economy consistently outperforming the IMF’s growth expectations.

Despite global economic uncertainty and rising instability, the UAE economy is expected to remain resilient in the near term, with the fund projecting growth will quicken to 5% in 2026.

“The UAE has shown strong resilience to global uncertainty, regional conflicts and oil market volatility … supported by sustained diversification and expanding exports,” said the IMF in its latest statement on the country.

Inflation is expected to remain subdued in 2025, averaging 1.6% – down from an April 2025 IMF estimate of 2.1% – and to hover around 2% in the medium term.

Housing costs remain the primary source of price pressure and a growing concern for affordability, while prices for tradable goods are expected to remain stable.

Property market risk

Concerns over the state of the real estate market are one area where potentially negative assessments hang over the UAE economy.

These concerns are currently concentrated in Dubai, where soaring prices have outpaced average wage rises and prompted warnings of a possible bubble.

UBS, in its Global Real Estate Bubble Index 2025 report, has significantly worsened its assessment of risk in the Dubai property market, moving it from 14th to 5th place in its ranking of exposure to a potential market crash.

The rise in Dubai’s risk assessment was the largest increase of any market since the prior edition of the report, and the overall classification for Dubai was raised from ‘moderate’ to ‘elevated’.

Property prices in the Dubai housing market have surged about 70% above pre‑pandemic levels in recent years, according to Knight Frank and JLL data, contrasting with more gradual recoveries in other sectors.

Sales have also shifted towards larger volumes of off‑plan transactions, where prices continue to rise even as growth in ready property prices has levelled off.

In May 2025, ratings agency Fitch issued an assessment pointing to up to a 15% moderation in prices in H2 2025 through 2026, suggesting the market had reached its peak.

Future oversupply was the key concern in the report, which expected new construction projects launched between 2023 and 2024 to add about 250,000 units to the market, with a peak of 120,000 handovers in 2026.

Countering these assessments are arguments that the city’s underlying economic fundamentals and steady population growth will continue to support consistent demand capable of absorbing the expected supply.

The UAE government is also encouraging net immigration through more flexible residency visa arrangements, which, together with property sale incentive schemes, are expected to continue to drive property demand in the near term.

Broader momentum

Other key growth sectors for the UAE include tourism, construction and financial services — all of which continue to support the country’s economic momentum.

The resilience of the country’s financial markets and capital flows despite recent global and regional shocks remains a positive signal for investors.

The UAE is also supporting an investor‑friendly environment through agile regulation of fast‑growing areas, including the emerging market for virtual assets.

This has been complemented by the country’s recent removal from the Financial Action Task Force’s grey list, reflecting the government’s enhanced efforts to regulate and combat irregular financial activity.

In the background, the UAE government continues to expand its Comprehensive Economic Partnership Agreements (Cepa) with other countries — supporting diversification of the country’s global trade relations and networks.

Support for the UAE’s resilience is also reflected in a positive trend in the S&P Global Purchasing Managers’ Index (PMI) in September, which saw the non‑oil private sector deliver its best performance in seven months.

After dipping to a recent low in July, the UAE PMI climbed for two straight months to reach its highest level since February in September — buoyed by a resurgence in new order growth as the economy emerged from the softer summer period.

Despite a weaker year overall, with new order growth in particular falling to its lowest point in four years in August, UAE business sentiment nevertheless hit a 10‑month high that same month, even as new orders dipped.

Now, the continuation of overall positive momentum in the index for the second month running suggests that recent concerns, including over geopolitical developments in the region in the form of the Israeli attacks in the Gulf, have been largely shrugged off.

The government appears to be keeping the country’s fortunes on an even keel despite the choppy global economic backdrop.

Taken together, the government’s firm stewardship, momentum in financial markets and robust public and private activity across key growth sectors help explain why the country’s growth continues to exceed expectations.

ALSO READ: Public spending ties the UAE closer together

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John Bambridge

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  • Petrofac collapse could impact $5.83bn of Mena projects

    28 October 2025

     

    On 27 October, Petrofac announced that it had applied to appoint administrators, a move that has potentially put thousands of jobs at risk and increased uncertainty for projects worth billions of dollars in the Middle East and North Africa (Mena) region.

    The total value of projects awarded to Petrofac and under construction in the region is $5.83bn, according to information recorded by the regional project-tracking service MEED Projects.

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    UAE projects under execution

    In the UAE, Petrofac has five active projects, all awarded by Abu Dhabi’s state-owned Adnoc Gas.

    The biggest of these is a $1.2bn project for the planned Das Island gas liquefaction facility, which was awarded in June this year and expected to be completed by the fourth quarter of 2027.

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    The GCC remains in the grip of an infrastructure supercycle that requires project sponsors to seek out the most efficient funding solutions. This places project finance firmly in the frame, with interest piqued by developers’ preference for financing models that match long-term concessions with long-term debt. 

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    “These projects are being developed on a very large scale, which gives rise to new challenges from a financing perspective, in terms of considerations for things like split procurement and battery degradation, which are not necessarily features of wind and solar project financings.”

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    “In the digital space, there are still some challenges to [closing] large-scale project financing,” says Hussain. “But we know there are hyperscalers that are expected to come in with slightly longer-term leases or MSAs [master service agreements] that can support a project financing.”

    These may have tenors of around 10-15 years, which Hussain points out is not particularly common, but he says the hyperscalers “see the opportunity to have a foothold there – and so they may be committing for slightly longer tenors”.

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    “So, while it might be new for the region, it is not necessarily new for those banks,” says Bracewell’s Irwin.

    The re-entry of international lenders has changed the pricing equation, too.  

    “The international commercial banks have become even more competitive, coming into domestic GCC projects, often outpricing the regional banks, which was not the case for the last five years or so,” says Hussain.

    Whereas regional banks used to be much more competitive than international banks, various liquidity constraints have meant that the international banks are now coming in at much tighter pricing than ever before. 

    So, while recent years have witnessed much liquidity and risk appetite from the local and regional banks that have started to play a prominent role in the financing of major infrastructure and energy projects, Bracewell’s Irwin says that in the last 12 months, there has been “a resurgence of sorts from the traditional international banks, leading to Middle East project deals, in particular in Saudi renewables projects”.

    New sectors have come to the fore that are suitable candidates for project finance, including battery storage

    Financing structures

    Refinancing has been a feature of GCC project financing arrangements for many years. The so-called soft mini-perm structure, which involves margin step-ups and cash sweeps that give an incentive to refinance debt over time, retains popularity among sponsors. 

    “The primary and preferred method for project financings in the region is a soft mini-perm. It is a proven model that works very well for the region and continues to attract a deep pool of financiers that are willing to lend to the region’s large pipeline of energy and infrastructure projects,” says Irwin.

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    “We continue to see that Islamic financing is a key tool for project sponsors. If you are looking to diversify your funding base, it is now very normal to have an Islamic finance tranche alongside a conventional tranche, as well as an ECA tranche,” notes Irwin.  

    Capital market instruments are another innovation identified by Gulf deal advisers. Saudi Arabia’s Greensaif pipeline transaction with BlackRock and Saudi Aramco in 2024 was a pipeline monetisation deal that saw BlackRock take a 49% interest in Aramco’s gas pipelines in Saudi Arabia. 

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    “We have seen that different types of banks get priced out of the market from time to time, but they invariably look to return to the market because Middle Eastern projects are generally well-structured financings with very robust revenue streams. That gives rise to a lot of enthusiasm to support these projects,” says Irwin. 

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  • Fujairah F3 power plant begins commercial operations

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    Located in Qidfa, the $1.14bn Fujairah F3 project is the UAE’s largest natural gas-fired combined-cycle power plant.

    Developed between the existing Fujairah F1 and F2 facilities, the plant can supply electricity to about 380,000 homes. Ewec is the sole procurer of electricity from the project under a long-term power purchase agreement.

    Fujairah Power Company F3, a special purpose company, is developing the project.

    It is jointly owned by Abu Dhabi National Energy Company (Taqa, 40%), Japanese firms Marubeni Corporation (20.4%) and Hokuriku Electric Power Company (19.6%), and the UAE’s Mubadala Investment Company (20%). 

    Financial close was reached in mid-2020 through a consortium of international lenders, including Japan Bank for International Cooperation, Mizuho Bank (Japan), Sumitomo Mitsui Banking Corporation (Japan), BNP Paribas (France) and Standard Chartered (UK).

    South Korea’s Samsung C&T was awarded the engineering, procurement and construction contract, while engineering consultancy was provided by Austria’s ILF Consulting and Germany’s Fichtner Consulting.

    The facility is equipped with three Mitsubishi Power M701 JAC gas turbines, each weighing more than 500 tonnes, integrated with heat recovery steam generators. 

    Mitsubishi Power was operating under the name Mitsubishi Hitachi Power Systems at the time of the contract award, before Hitachi exited the joint venture in 2021.

    Construction of Fujairah F3 was completed in late 2024.

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    Mark Dowdall