“Despite oil production cuts and lower oil prices, the UAE has enough financial reserves to maintain fiscal support for the economy through 2021, possibly benefiting growth in the longer term. The UAE authorities also seem primed to support the economy in the recovery phase - including preparation for Expo 2021 and funding for new projects that contribute to economic diversification and digital transformation,” said Michael Armstrong, ICAEW regional director. Commissioned by ICAEW, the Oxford Economics report forecasts an overall GDP growth of 1.1 per cent for the UAE in 2021 in comparison to a GDP forecast for 2020 of -7.8 per cent --- the weakest projection for the UAE in over three decades.
“As global recovery from the Covid-19 pandemic stalled, with a second wave seen in various parts of the world and virus containment measures being re-imposed in many economies, the outlook for the UAE economy remained challenging,” said the “Economic Update: Middle East Q4 2020.”
Analysts said declines in oil activity and Dubai’s tourism sector are expected to stunt economic growth. “However, Google mobility trends indicate a rise of activity over the past couple of months as restrictions continue to ease across the country - especially in the important workplace and retail and recreation sectors. This is consistent with the Purchasing Managers’ Index (PMI) that separated expansion from contraction in the non-oil sector and indicates stalling of growth momentum as 2020 draws to a close,” the report said.
They argued that the updated Opec+ agreement sees UAE oil output rising only slightly in January 2021 from the production quota for the second half of 2020. This means the oil sector will continue to be a drag on growth, though output decline will moderate next year and recover thereafter.
The report noted that the slow pace of recovery continues to hinder employment dynamics. A recent survey by Mercer, a human resources consultancy, found that 30 per cent of businesses in the UAE plan to reduce their workforce, with the biggest cuts planned in the retail sector. “This indicated that while the expat exodus may be abating, it will not be reversed until next year when a sustained recovery from Covid-19 takes hold.”
The tourism sector, a key pillar of the UAE non-oil economy, accounts for approximately 16 per cent of the country’s GDP, both directly and indirectly via its impact on the supply chain and the spending it supports. “Despite a significant rise in “staycations” among UAE residents, hotel occupancy rates are well below a year ago, and visitor numbers were expected to continue to fall by 60 per cent in 2020,” the report noted.
“As a regional travel and tourism hub, the UAE economy will continue to be affected by the re-imposed bans and restrictions placed across Europe and elsewhere,” said Armstrong.
He noted that the delay of Expo 2020 Dubai could play a huge role in the country’s economic rebound, providing a greater opportunity for success. “The increase in inbound tourists to the country should result in a more significant overall contribution to the economy.”
The UAE has launched its first federal domestic tourism campaign – ‘World’s Coolest Winter’ – encouraging residents to “explore the hidden gems of the seven emirates.”
The 45-day campaign, overseen by the Ministry of Economy in collaboration with local tourism entities is a prelude to a more pronounced international tourism drive in the imminent post-Covid period.
For the Middle East region, Oxford Economics analysts see a recovery that is slowly underway, “but won’t return to pre-crisis level until 2022. GDP forecasts for the Middle East for this year and next stand at -6.8 per cent and +2.9 per cent, compared to an average pace of 2.6 per cent between 2010 and 2019.
“The oil sector remains a drag on overall growth as countries cut production in line with the Opec+ April deal. Therefore, with both oil and non-oil sectors facing hurdles, the GCC is set for a large GDP contraction of 5.3 per cent this year, before recovering by 2.4 per cent in 2021,” it said.
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