Non-oil sector drives UAE growth
It is also supported by rising oil prices, regional economic recovery and higher public spending and investment
Driven by a rebounding non-oil sector, the UAE economy is set to accelerate to 2 per cent this year, up from the 8-year low of 0.8 per cent in 2017, supported by rising oil prices, regional economic recovery, higher public spending and investment and a gradual build-up in business momentum, the latest Economic Insight report by ICAEW said.
The accountancy and finance body says the non-oil sector, which represents close to 70 per cent of the UAE's economy, is driving the country's economic growth this year. The non-oil sector is expected to grow by 3 per cent in 2018 and by 3.6 per cent in 2019.
In contrast, the oil sector is expected to remain a drag on growth in 2018. This is because the overall production has remained limited in the first half of 2018 at an average of 2.85 million barrels per day, down by almost 2 per cent from the average of 2.91 million barrels per day in the first half of 2017.
However, oil production increased in the third quarter of 2018 by nearly 0.14 million barrels per day to 2.99 million barrels per day, higher than the 2.85 million barrels per day seen in the first half of 2018, due to tighter global oil market conditions as countries brace for the effects of US sanctions against Iran, said a report produced by Oxford Economics.
The report noted that oil production is expected to pick up further by the year-end, subject to market conditions, as the UAE continues to expand its production capacity to 3.5 million barrels per day by the end of this year. "Overall, despite the recent acceleration in oil activity, the oil sector is expected to decline slightly by 0.3 per cent in 2018."
"The UAE economy has been adapting well to a prolonged decline in oil prices since 2014. For instance, the introduction of VAT in 2018 has been a historic milestone and is expected to substantially strengthen and diversify government revenues in the coming years," said Michael Armstrong, FCA and ICAEW regional director for the Middle East, Africa and South Asia.
"Continued improvements in spending efficiency, strengthening non-oil revenue, advancing to a competitive knowledge-based economy, deepening and broadening structural reforms, privatising non-strategic government-related enterprises [GREs] and improving the ecosystem for SME development and access to finance would help achieve Vision 2021 goals," said Armstrong.
The report said the real estate market is yet to recover. Residential sales prices in Dubai fell by 2 per cent year on year in September 2018, while Abu Dhabi saw a sharper 9.3 per cent drop.
"Strong supply growth in housing, a soft jobs market and subdued demand were the main reasons behind the decline. In addition, job creation in the UAE has been quite modest this year as judged by the Emirates NBD employment index. But as the overall macroeconomic conditions continue to improve, the pace of job creation should gradually pick up," said the report.
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