UAE economy estimated to score 9.7% real GDP growth for 2006
UAE’s nominal GDP grew by 25.6% in 2005 to reach AED485.5bn (US$132.3bn), according to the Central Bank of UAE estimates. Real GDP grew by 8.2% to AED357.6bn on the back of strong economic activity, high oil prices, and large fiscal and external surpluses. This is the third consecutive year of oil price-led high growth in the country, as in the case of the other GCC countries. Tremendous growth in the last couple of years has boosted the per capita GDP to an all time high of US$28,147 in 2005 as compared with US$24,380 the year before. Within GCC countries, UAE had the second highest per capita GDP after Qatar.
Oil and gas, which contributed 35.7% of the economy in 2005, had a phenomenal growth of 40.5%, on the back of a 33.8% growth recorded in the previous year. Similarly, non-oil sector in the UAE continued its steady growth, growing by 18.6% in ’05 to represent 64.3% of GDP. Among the various sub-segments within the non-oil sector, the highest growth was recorded by the manufacturing sector. The segment grew by a robust 22% in 2005, to represent 12.6% of GDP. Manufacturing sector is considered a pioneer sector due to the importance of activities that it comprised as industrial production of fertilizers, oil and petrochemical industrial products and gas liquefaction, food industries, aluminum, building material industries, cement and pharmaceutical products.
More important, was the ‘Real estate and Business services’ that constituted at 7.4% of GDP and grew by 19.7% in 2005. This sector was buoyed by the increasing investment in infrastructure, due to the country being positioned as an attractive tourist destination in addition to the increase in the residential and non-residential units.
Generally, UAE’s economy is still characterized by the sheer size of consumption expenditure that continued to account for the highest share of GDP during 2005. Consumption expenditure stood at AED268.3bn in 2005 and grew by 8.3% over 2004. Private consumption expenditure stood at 44.1% of GDP and grew by 7.7% in 2005.
On the investment expenditure front, the year 2005 witnessed major changes as government investment encountered its first trough since 2002 declining by 14.8%. On the contrary, public sector investment accounted for this decline as it continued to be robust growing by another 26.6%. Compensating for the lower growth of government investment, private investment grew rapidly by 49.1% that is very high considering that it came on top of 8.9% growth last year. Private sector, especially technology-based companies supplying to government institutions, have been aided to a large extent by the heavy public spending. However, on an absolute level, there has been an increase in capital formation, which is critical to the long-term growth of the economy. Total investments expenditure stood at AED103.6bn in 2005 up from AED81.3bn during 2004, reporting 27.5% growth. Net exports almost doubled to stand at a new landmark of AED113bn in 2005 up from AED56.9bn in 2004. Exports, boosted by high oil prices grew by 26.9%, and a consequent increase in disposable income and higher private consumption resulted in imports growing at a rate of 12.2%.
Looking forward, we expect economic growth to remain buoyant for both 2006 and 2007. According to Abu Dhabi Chamber of Commerce, GDP is estimated to grow by 14% for 2006 to reach AED553.4bn while in real terms the economy is estimated to score 9.7% growth rate. Both oil and non-oil sectors are to continue picking up for the medium term. Supporting these expectations are the large-scale real estate and infrastructure projects to commence in the next period toward 2010 whether in Dubai or Abu Dhabi that are already in the pipeline as a part of each emirate’s economic diversification strategy. As for the oil sector, prices are expected to remain high and plans to expand capacity in the oil sector will result in higher production. On the other hand, non-oil sector will gain more support from the diversification strategy. We expect manufacturing and trade to continue growing at high rates, in turn keeping the overall economic growth steady. Spending in capital-intensive industries, especially petrochemicals and gas would prop up the economy in the longer term. Finally, both the current account and overall fiscal surpluses are expected to remain buoyant. (Global Investment House – UAE Economic & Strategic Outlook – GDP)