The UAE’s economy grew by 8.2 percent in the first quarter, thanks to an increase in oil production, the UAE’s central bank said on Wednesday.

Real GDP will grow by 5.4% this year and 4.2% next year, the central bank said. The strong growth is likely due to higher oil production and the government’s commitment to double the size of the manufacturing sector by 2031.

Hydrocarbon GDP rose about 13% in the first quarter, with oil production averaging 2.95 million barrels per day.

“Shocks in global oil supply and demand have increased oil price volatility and raised price levels. Depending on developments in global economic activity, recessionary expectations and geopolitical tensions, there may be opportunities for increased oil supply to balance markets and stimulate global growth.”

US President Joe Biden met with other leaders in the Gulf and Saudi Arabia last weekend.

Saudi Arabia and the United Arab Emirates are among the few producers with significant spare capacity.

UAE’s oil GDP is expected to grow by 8% this year and 5% in 2023. The central bank said non-oil GDP rose 6.1% in the first quarter to 4.3% in 2022 and 3.9% in 2023.

Inflation for 2022 is expected to be 5.6%. Year-on-year inflation was 3.4% in the first quarter, compared with 2.3% annualized in the fourth quarter and 0.6% in the third quarter.

“Higher oil prices as fuel will have a significant impact on transport costs and therefore on inflation. The same applies to rapidly increasing food prices worldwide, with inevitable consequences in the UAE,” the central bank said.

The UAE is the only Gulf country without a fuel price cap, and like its neighbors, it imports most of its food. Transport inflation – which weighs 12.7% in the consumer basket – rose 22% in the first quarter.

The average price of residential properties in Dubai rose by 11.3% in the first quarter. Off-plan sales rose 94.6% in the quarter, while aftermarket sales rose 76.1%.

The central bank said: “Upward pressures on inflation will come from higher wages and higher rents. As a result, domestic demand will increase and may put further pressure on prices, particularly on non-tradable goods such as rents.”

The peg of the UAE dirham to the dollar is expected to reduce the impact of imported inflation.

(Reporting by Yusuf Saba, Editing by Angus McSwan)