UAE economy to witness full recovery by 2022
Financial soundness indicators remain healthy, boding well for future performance
The UAE will have a full recovery in 2022 while pivoting to positive growth this year after recording a deep contraction in 2020, the Central Bank of the UAE said on Thursday.
The road to full recovery will be driven by a continued surge in fiscal spending, healthy banking sector credit growth, strong improvement in employment and recovered business sentiment, with part of Expo 2020 Dubai taking place in 2022 as well, the apex bank said.
For 2021 and 2022, the regulator foresees real total GDP to resume growth by 2.5 per cent and 3.5 per cent, respectively, and non-hydrocarbon real GDP to grow by 3.6 per cent and 3.9 per cent, respectively.
“However, economic projections include exceptional uncertainty amidst Covid-19 repercussions and are thus subject to revisions,” it said in its Quarterly Economic Review.
Economic activity in the UAE continued its recovery in the fourth quarter of 2020. Non-oil sectors improved further in the three-month period as lockdowns were eased and travel resumed, while the country started the initial phases of vaccine distribution. The central bank estimates real total GDP growth for the year 2020 to be -5.8 per cent, with real non-hydrocarbon GDP projected to decline by 5.7 per cent.
Consumer price inflation remained negative for the fourth quarter at -2.2 per cent year-on-year, driven by negative inflation in non-tradeables (-3.5 per cent) as a result of a decline in rents and in the price of fuel, in tandem with overall subdued domestic demand.
Real estate prices continued to decline year-on-year, albeit at a lower rate, while the dirham depreciated in both nominal and real terms, in line with the weakening of the dollar, the banking regulator said.
With regard to the consolidated fiscal stance in the third quarter of 2020, the most recent period for which data is available, the operating fiscal balance recorded a deficit of Dh4.6 billion, due to the fall in revenues by 38 per cent year-on-year to Dh67.8 billion, while expenditures declined by 21.7 per cent to Dh72.4 billion.
“Both deposits and gross credit rose on a yearly basis despite the economic contraction, while decreasing on a quarterly basis,” it added.
Meanwhile, financial soundness indicators remained healthy, supported by the enhanced Targeted Economic Support Scheme, which was extended in November to extend loan repayment deferrals and other regulatory relief measures until June 2021, the central bank said.
“Furthermore, with Qatar’s 2022 Fifa World Cup competition taking place during the year and the UAE being the major tourism, transit and trade hub in the region, the UAE is expected to benefit from the event,” it added.
As an oil exporter, the UAE is likely to feel the fallout from reduced global demand for oil due to the contraction in economic activities worldwide, including transportation and international travel, the central bank said.
UAE oil production fell by 17.7 per cent year-on-year in the third quarter and by 18.2 per cent in the fourth, in line with the agreement by Opec+. Real oil GDP is estimated to have contracted in 2020, corresponding to average oil production of 2.78 million bpd for the year as a whole, it said.
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