UAE On Track For Faster Growth

The Emirates' economy is on track to achieve robust growth averaging 4.6% until 2024


Issac John

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The Arab Monetary Fund forecasts a growth of 4.2 per cent for the UAE in 2023, accompanied by a decline in the consumer price index to 2.9 per cent in 2023 and 2.57 per cent in 2024.
The Arab Monetary Fund forecasts a growth of 4.2 per cent for the UAE in 2023, accompanied by a decline in the consumer price index to 2.9 per cent in 2023 and 2.57 per cent in 2024.

Published: Fri 28 Jul 2023, 1:02 PM

Last updated: Fri 28 Jul 2023, 5:16 PM

The UAE, one of the fastest-growing economies in 2022, is on track to demonstrate continued robust growth averaging 4.6 per cent until 2024 driven by increased oil price revenues, higher tourist arrivals, booming real estate transactions, and improved business confidence.

The International Monetary Fund (IMF) has projected that the Emirates’ economy would expand at a faster pace next year as it lowered the global growth outlook slightly amidst uncertainty in the financial system. The IMF has projected that the country’s GDP would expand at 3.9 per cent in 2024 as compared to 3.6 per cent this year regardless of geopolitical headwinds and uncertain global recovery prospects. The IMF’s executive board has said the UAE’s economic outlook remained positive, supported by strong domestic activity and enhanced business confidence

Analysts said the impressive progress the UAE has shown in implementing comprehensive economic partnership agreements with key nations will help it improve trade and integration into global value chains while attracting more foreign direct investment, boosting national economic growth, going forward. They see such partnerships as significant drivers of growth that create trade and investment opportunities and contribute to the vitality of regional and global trade and investment flows in 2024.

They are equally upbeat about the second half of 2023, given the strong rebound in the real estate and travel and tourism sectors spurred by the continued migration of businesses, investors, and high-net-worth individuals from across the globe.

Major international events, including the Dubai Airshow 2023 and the United Nations Climate Change Conference (COP 28) taking place from November 30 until December 12, 2023 and a string of other international exhibitions and conferences will result in steep growth in the travel and hospitality sector.

According to S&P Global, a strong rise in new businesses across the country underlined the growing confidence with the business community about sustained economic prospects. Expectations towards activity over the next year improved for the fifth consecutive month in May to the highest level since late-2021.

Following the 2022 Article IV consultation with the UAE, the IMF’s directors recently forecast a 3.8 per cent surge in non-hydrocarbon growth driven by continued tourism activity and increased capital expenditure.

“Nevertheless, the outlook is subject to significant global uncertainties, including weaker growth, tighter financial conditions, and geopolitical developments.”

The IMF’s board estimated the country’s overall growth in 2022 to reach 6.9 per cent, with non-hydrocarbon GDP growth of 5.3 per cent while hydrocarbon GDP is expected to grow by 11.1 per cent. Inflation has risen with global trends but is expected to ease to 3.4 per cent in 2023.

Fiscal and external surpluses, according to the IMF, are expected to remain high on the back of elevated oil prices. “Banks are adequately capitalised and liquid overall, but nonperforming loans remain elevated, albeit down from recent peaks, and real estate prices have risen sharply in some segments.”

The IMF board has observed that the UAE has taken major efforts under the National AML/CFT Strategy and Action Plan to further strengthen the regulatory regime to ensure its effectiveness, in line with the enhanced monitoring under the Financial Action Task Force recommendations.

Commending the implementation of enhanced UAE reform efforts that posed upside risks to medium-term growth, the IMF said strong reform efforts continue under the UAE 2050 strategies. “Advancement on Comprehensive Economic Partnership Agreements (Cepas) will boost trade and integration in global value chains and further attract foreign direct investment (FDI).”

In addition, the Washington-based Fund said the benefits of artificial intelligence and digitalization and investments in enabling infrastructure will further support economic diversification, foster a smooth energy transition, and help address vulnerabilities from global decarbonization efforts. “Long-term vulnerabilities from global decarbonization efforts are being addressed through commitments to climate initiatives and a balanced approach to energy transition.”

The IMF board commended the UAE’s effective Covid response, timely policy actions, and structural reform implementation, leading to strong growth, further supported by high oil prices.

However, in the context of significant global uncertainties and risks, the IMF encouraged the UAE authorities to further solidify the fiscal position and further strengthen the financial sector, diversify the economy, and continue implementing reforms necessary to achieve the nation’s ambitious green transition goals.

The board welcomed the ongoing development of trade and economic partnerships, which are expected to boost the UAE’s productivity and competitiveness over time. They encouraged continued improvements in the collection and timely dissemination of economic data to buttress the authorities’ reform efforts.

Analysts argue that additional fiscal reforms would broaden and diversify the revenue base and support a smooth adjustment to a lower carbon future. They also see the importance of continuing efforts to improve fiscal transparency and strengthen governance and accountability by publishing general government, emirate- and federal-level fiscal data.

According to financial analysts, emerging downside risks facing the UAE financial system include a slowdown in global growth, persistent inflationary pressures, heightened global financial market volatility, and implications of rising interest rates for borrowers and investments. Although overall bank balance sheets remain healthy, continued close monitoring of financial stability risks and further strengthening of macroprudential frameworks is warranted, including given the high level of nonperforming loans, tightening financial conditions, and banks’ exposures to the real estate sector, they argued.

The World Bank projected the GCC's second-biggest economy to grow at 3.3 per cent in 2023, down from 4.1 per cent forecast in October while its non-oil sector is poised to achieve stronger growth of 4.8 per cent, driven by robust domestic demand, particularly across tourism, real estate, construction, transportation, and manufacturing sectors. The fastest-growing economy within the GCC in 2023 is projected to be Oman with growth seen at 4.3 per cent.

The Arab Monetary Fund (AMF) forecasts a growth of 4.2 per cent for the UAE in 2023, accompanied by a decline in the consumer price index to 2.9 per cent in 2023 and 2.57 per cent in 2024. In its "Arab Economic Outlook Report," the AMF projects a 3.4 per cent growth for Arab economies on the back of stable oil and gas prices and lower prices for basic goods, such as agricultural products, accompanied by tighter monetary policies to curb inflation.

These bullish forecasts are consistent with the forecasts of the Central Bank of the UAE which saw the economy growing at a solid pace in first quarter 2023, “reflecting a strong performance of the non-oil sector, partially offset by a moderation in the oil segment of the economy”. For 2023, growth has been revised down by 0.6 percentage points to 3.3 per cent, reflecting oil production cuts agreed among Opec+ members.

However, economists and analysts caution that the country’s growth prospects in 2023 face key obstacles, including a decline in oil output resulting from Opec-agreed production cuts, a slowdown in the non-oil sector due to higher interest rates, and subdued external demand.

Analysts at various global organisations have called for continued actions by the UAE to further strengthen the regulatory regime in line with the enhanced monitoring under the Financial Action Task Force. While welcoming the UAE’s ambitious structural reform agenda, including significant investment in digital and green initiatives to further advance diversification and support a smooth energy transition to a lower carbon future, they called for additional measures to improve the business environment and modernise the labor market, including by continuing to encourage greater female participation.

With around 30 per cent of the country's GDP and 13 per cent of total exports, oil and gas industry plays a crucial role in the UAE's economy.
With around 30 per cent of the country's GDP and 13 per cent of total exports, oil and gas industry plays a crucial role in the UAE's economy.

According to GlobalData, with around 30 per cent of the country's GDP and 13 per cent of total exports, oil and gas industry plays a crucial role in the UAE's economy. “The year 2022 witnessed a significant economic upturn, with a growth rate of 7.6 per cent, the highest since 2007, primarily fueled by surging oil and gas prices. However, the decline in oil and gas prices since the beginning of 2023, expected to persist throughout the year, directly impacts the UAE's economic growth prospects for the current year.”

“To make the economy less vulnerable to external shocks, it remains crucial for the government to persist in its endeavour to diversify the economy. Abu Dhabi’s plan to invest $2.7 billion to double the size of the manufacturing sector by 2031, and the adoption of UAE Circular Economy Policy 2031 which focuses on manufacturing, food, green infrastructure, and sustainable transport, reflects the government’s urge to transform to a more diversified economic base,” says Indrajit Banerjee, economic research analyst at GlobalData.

“Even though, the UAE's economic growth outlook for 2023 faces challenges, the ongoing diversification efforts and development projects aimed at strengthening the economy will play a vital role in reducing its vulnerability to external shocks,” he said.

Mining, manufacturing, and utilities activities contributed 31.2 per cent to the gross value added (GVA) in 2022, followed by financial intermediation, real estate, and business activities (22 per cent), and the wholesale, retail, and hotels sector (15 per cent). According to analysts, in nominal terms, these three sectors are forecast to grow by 2.9 per cent, 3.7 per cent, and 2.5 per cent, respectively, in 2023 as compared to 9.6 per cent, 12.4 per cent and 8.4 per cent in 2022.

The UAE has undertaken several development projects with an investment of $23 billion in July 2022 to significantly boost construction and allied activities and create job opportunities. Some of the ongoing projects include the railway network project under Etihad Rail’s supervision of Dh40 billion by 2024, the construction of Dubai urban tech district by 2024, and the expansion of the capacity of the Rashid solar park by 2025. These projects are expected to drive the construction activities, which GlobalData forecasts to rise by an average of 2.0 per cent over 2023-25.

The UAE is categorised as a very low-risk nation and ranked 10th out of 153 nations in GlobalData Country Risk Index (GCRI Q4 2022). The country’s risk score is lower in the parameters of political environment, macroeconomic, social, and environmental risk when compared to the average of the Middle East and North African nations. On the external side, the exports growth is projected to slow down from four per cent in 2022 to 2.6 per cent in 2023. On the domestic side, real household consumption expenditure is projected to grow at a slower pace at 4.0 per cent in 2023, compared to 8.4 per cent in 2022.

The UAE holds 7.2 per cent of the oil reserves and four per cent of the natural gas reserves in the World in 2021. In May 2022, the Abu Dhabi National Oil Company made a significant discovery in Abu Dhabi, uncovering 650 million barrels of onshore crude oil reserves.


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