Amid rising global policy uncertainty, UAE clocks in record US Treasuries holdings, strong monetary stance & robust FDI in Dubai: Weekly Insights 21 Mar 2025
1. Global Policy Uncertainty Surged Near to the Pandemic high in Jan
The Economic Policy Uncertainty Index (which is built by detecting the presence of keywords in news media) surged to 429.8 in Jan, brushing close to COVID-19 highs (431.6 in May 2020), largely stemming from the impact of US tariff threats and foreign policy decisions/ alliances. The US-specific uncertainty index jumped to 335 in Feb (from 225 Nov 2024 and 109 in Oct).
2. UAE’s holdings of US Treasuries expanded to a record-high USD 92.6bn in Jan ‘25
- Foreign holdings of Treasuries held relatively steady at USD 8.526trn in Jan, up by 7.2% yoy.
- In contrast to end-2024, both Japan and China raised US Treasuries holdings in Jan. Japan – the largest foreign holder of US government debt – raised holdings to USD 1.079trn in Jan.
- China raised US Treasuries holdings to USD 760.8bn (Dec: USD 759bn, lowest level since 2009), but is a far cry from its record high USD 1.315trn (in Jul 2011).
- Amid rising global geopolitical risks, central banks continued to increase exposure to gold: China added five tonnes net purchases in Jan & its gold holdings rose to 6% of total reserves.
- From the GCC, UAE not only posted a monthly increase of its US Treasury holdings (+20.1% mom), but also saw its holdings rise to a record high USD 92.6bn in Jan (+54.1%).
- Saudi Arabia is the 16th largest investor globally, with its holdings down by 7.7% mom and 3% yoy to USD 126.9bn.
- Kuwait posted an annual gain of 7.1% (to USD 49.2bn) though in monthly terms, it was down by 2.2%.
3. Dubai was the world’s top city for attracting Greenfield FDI projects in 2024; investment flows are broad-based
Main points include: (a) this is the highest number of total announced projects recorded since 2015 & greenfield projects account for close to 55% of total (value & number); (b) by number of announced projects, business services was top sector into which FDI flowed for the second year in a row in 2024; (c) by value, hotels & tourism projects saw an almost 10-times surge in FDI to USD 7bn+ in 2024 (though lower than values seen in 2017-19); FDI into financial services, which had surged in 2023 (to AED 11.5bn), slowed to AED 3.5bn in 2024; this was still the fourth largest sector attracting funds; (d) UK, India and US invested in close to 50% of total number of projects in 2024; (e) by value, India, US & France topped the list, with investments from India up almost 4-fold vs 2023 & the top 5 nations accounted for more than 60% of total.
4. UAE deposit growth accelerated in 2024, credit growth paled in comparison
- UAE’s gross bank assets grew by 2.4% mom and 12% yoy to a record AED 4.56trn in 2024. The central bank’s total assets surged by 24.3% yoy and 4.0% mom to a new record-high AED 895.794bn in Dec.
- UAE banks’ deposits grew by an average 14.1% in 2024. In Dec, deposit growth was thanks to a 12.2% yoy rise in resident deposits (to AED 2.6trn) and 20.4% surge in non-resident deposits (share of 8.5% of total deposits).
- Private sector deposits (at AED 1.865trn) was 65.5% of total deposits and 71.6% of total resident deposits in Dec; grew by 0.9% mom and 14.4% yoy.
- Government & GREs, that together accounted for almost one-fourth of total deposits in Dec, grew by 1.7% yoy and 20.1% yoy respectively.
- Despite a continued acceleration in deposit growth that indicates high levels of domestic liquidity, gross credit growth lagged, rising only by an average 8.2% in 2024.
5. Domestic credit growth in the UAE grew by an average 6.1% in 2024
- Gross credit in the UAE grew by 0.8% mom and 9.5% yoy to AED 2.18trn in Dec. This was driven by growth in domestic credit (6.4% yoy to AED 1.848trn in Dec, though down 0.4% mom) and foreign credit (8.3% mom and 31.0% yoy to AED 332.4bn). Foreign credit also includes loans and advances to non-residents, which grew by 29.6% yoy to AED 24.5bn.
- Within domestic credit, the share of loans to the private sector stood at 72.8% in Dec. Loans to the government increased by 5.5% yoy to AED 194.5bn in Dec while growth of loans to GREs was flat at AED 292.5bn.
- Loans disbursed to business and industrial sector (at AED 857.1bn) accounted for almost 2/3-rds of credit to the private sector. Credit disbursed to the private business and industrial sector grew by an average 4.8% in 2024 while in contrast, private sector retail credit grew at a much faster pace of 13.5%. Lending to the SMEs has fallen significantly (AED 83.0bn at end-2024 vs a high of AED 94.6bn in Q2 2021).
- Personal loans for consumption accounted for more than 1/4th of disbursed loans in Dec, followed by construction & real estate (14%), financial institutions (11%), govt (10%) and others (9%, inclu. credit to service sector & non-profits).
6. Consumer price inflation in Feb held steady in Saudi Arabia alongside an uptick in producer price inflation
- Consumer price inflation in Saudi Arabia held steady at 2.0% in Feb: housing & utilities, which account for 25.5% weighting, continued to post the largest increase though it eased to 7.1% (from 8.0% in Jan). Rentals for housing was the biggest component within (at 8.5%, down slightly from Jan’s 9.68%) and villa rental prices jumped by 11.2% (vs 7.7% in Jan).
- Food & beverage costs inched up (+1% vs 0.8% in Jan) while prices at restaurant & hotels and education rose by 0.8% and 0.4% respectively. Miscellaneous goods and services prices accelerated: it rose by 3.9% (vs 3.3% in Jan).
- Wholesale prices in Saudi Arabia rose to 1.54% in Feb (Jan: 0.86%), as the prices of other transportable goods accelerated (3.39% vs 1.52%) and prices of food products was up 0.07% (from five consecutive months of deflationary readings). Prices fell for ores & minerals (-1.9% from -2.2%) and further for metal products & machinery (-0.49% from -0.24%). Prices of agriculture & fishery products was up by 3.91% in Feb (Jan: 4.63%).
- PoS data from the Saudi Central Bank show an increase in transactions in the week ended Mar 15th, with spending on food & beverages accounting for 14.1% of total transactions. Spending is likely to tick up further ahead of Eid and school holidays.
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