UAE's Economy to Slow Down as Abu Dhabi Cuts Oil Production: Report

Published August 22nd, 2017 - 01:54 GMT
An Emirati man looks at the solar power platform at Masdar City, on the outskirts of Abu Dhabi. (AFP)
An Emirati man looks at the solar power platform at Masdar City, on the outskirts of Abu Dhabi. (AFP)

The UAE’s real GDP growth will slow in 2017, owing to oil production cuts weighing down Abu Dhabi’s economy, BMI Research has said in a recent report. The slowdown belies a more positive story in the non-oil sector, and growth will strengthen in 2018, it said.

“We have downgraded our 2017 real GDP growth forecast for the UAE since our last quarterly report, in line with most of the GCC member states. This was primarily owing to weaker-than-expected oil prices and production cuts. We now forecast headline growth of 2.2% in 2017, down from a previous projection of 2.8%, and slower than the 3% expansion seen in 2016,” the Fitch Group company said.

That said, growth rates will be uneven across the emirates, given the greater importance of the oil sector in Abu Dhabi’s economy than Dubai’s, BMI Research said. More-diversified Dubai’s economy will expand by 3.2%, while Abu Dhabi will weigh on the headline UAE figure with a fairly tepid expansion rate of 1.8%.

As oil production returns to growth, so will real GDP growth pick up, and BMI forecasts a stronger 2.9% expansion in 2018.

The UAE has curbed its oil production as part of an agreement reached by OPEC and Non-OPEC oil producing countries in late 2016 and extended for a further nine months in May 2017, which will have a negative bearing on economic activity over the remainder of the year.

“We forecast that [oil] production will fall by 0.1% in 2017, compared to a 2.2% expansion in 2016. An easing of the production curb in 2018 will see production return to growth at 2.1% in 2018, contributing to the pick-up in the economy,” BMI said.

The global agreement on curbing oil production was reached in a bid to boost prices through reducing global stockpiles, but this has taken longer to take effect than BMI previously anticipated, owing to weak global demand in H1 and growth in volumes from Libya, Nigeria and North America.

As a result, in July BMI downgraded its Brent crude forecasts from $57 per barrel in 2017 and $60 in 2018, to $54 and $55 respectively. While prices do not have a direct bearing on real GDP, they have a major effect on government and private consumption, and on investor sentiment, further underpinning BMI’s real GDP growth downgrade.

While the oil production curb will slow growth in 2017, BMI said it is “more positive” with regards to the non-oil economy and a relatively strong performance here will offset some of the oil sector’s drag. BMI said oil prices have not rebounded as strongly as it has anticipated but are nevertheless stronger than they were in 2016.

These higher prices are leading to stronger sentiment in the emirates, which will further improve in the months ahead.

 


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