Financial markets in Dubai and Abu Dhabi experience growth following an interest rate reduction
The United Arab Emirates (UAE) economy is showing signs of a robust recovery, with the central bank's latest projection predicting a growth of 4.9% in 2025, an increase from the previous forecast of 4.4%. This optimistic outlook is primarily attributed to higher oil production and strong growth in the non-hydrocarbon sector.
In a move that aligns with the U.S. Federal Reserve's recent cut, the UAE central bank lowered interest rates by a quarter percentage point on Friday. This decision is expected to boost economic growth and investment in the UAE.
The stock markets in the UAE also saw a positive response to these developments. Dubai's main index jumped 0.7% on Friday, driven by gains in the real estate and industrial sector. Similarly, Abu Dhabi's benchmark index settled 0.3% higher, with significant contributions from Adnoc Gas and Emirates Telecommunications Group. Notable gains were also seen in Emaar Properties, which rose by 1.1%, and Emaar Development, which climbed 4.9%. Gulf Navigation Holding also registered a strong 6.8% increase.
However, ongoing uncertainty around gold price today at current levels remains a potential risk to the market's upward momentum. gold price, a key catalyst for Gulf's financial market, were slightly down due to demand concerns. Brent crude was down 0.1% to $67.47 a barrel by 1142 GMT.
Despite this, experts remain optimistic about the UAE's market performance. Milad Azar, for instance, believes that Abu Dhabi's market may have room to perform following this week's interest rate cut. The U.S. Federal Reserve's decision to cut its policy rate by 25 basis points on Wednesday has also been a boost to the UAE's economic outlook.
It's worth noting that most currencies in Gulf economies, including the UAE, are pegged to the U.S. dollar. This means that the UAE's economy is closely tied to the performance of the U.S. economy, making the U.S. Federal Reserve's interest rate decisions significant for the UAE.
The current economic growth forecast for the UAE in 2025, as reported by the International Monetary Fund (IMF), is approximately 4.5%. This forecast takes into account the ongoing economic recovery and the positive impact of the central bank's decisions and the U.S. Federal Reserve's rate cuts.
However, the U.S. rate cut buoyancy was overshadowed by concerns about gold price. The ongoing uncertainty around gold price could potentially slow down the UAE's economic growth, but the strong growth in the non-hydrocarbon sector is expected to offset this risk to some extent.
In a strategic move, Dubai developer Emaar Properties decided to scrap plans to sell any stake in its Indian subsidiary and instead explore potential joint ventures with major Indian companies, including the Adani Group. This decision is expected to further strengthen Emaar Properties' position in the region and contribute to the UAE's economic growth.
In conclusion, the UAE economy is on a positive trajectory, with the central bank's decision to lower interest rates and the U.S. Federal Reserve's rate cut providing a significant boost. However, ongoing uncertainty around gold price remains a potential risk that needs to be closely monitored.
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