UAE recovery on firm footing, says World Bank report
The World Bank has projected real GDP will average 3.4 per cent between 2021 and 2023
The UAE’s economy is showing signs of recovery in 2021 driven by a successful vaccination programme and a reduction in Opec+ oil production cuts, said a new report.
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“Over the medium term, the recovery will be bolstered by trade and tourism as health concerns wane and the authorities continue to work towards UAE’s long-run priority — diversification,” the World Bank said in its latest update about the country.
In 2020, Covid-19 and its economic fallout led to a contraction of UAE real GDP by 6.1 per cent. Oil production declined by 9 per cent in line with Opec+ production cuts.
“The rapid rollout of Covid-19 vaccines is expected to boost domestic spending and lead to a recovery in tourism. This coupled with a recovery in global trade, rising oil production and higher oil prices will support recovery in the medium term,” it said.
Authorities have taken steps to lure tourists to the country for the World Expo, such as providing visas to fully vaccinated travellers, which is expected to provide a boost, albeit a milder one than previously projected, to the economy, it added.
The World Bank has projected real GDP will average 3.4 per cent between 2021 and 2023. It projected 2.7 per cent GDP for 2021, 4.6 per cent for 2022 and 2.9 per cent for 2023.
“As the Opec+ oil production quotas are eased, oil revenues will enable fiscal and external balances to recover to pre-pandemic levels by 2023. Accommodative monetary policy, fiscal stimulus and a rebound in domestic demand will lead to a return of moderate inflation. The long-run economic prospects continue to hinge on the authorities’ efforts to create a favourable business environment and further support women’s participation in the economy, to foster non-hydrocarbon growth and create jobs in the private sector.”
Highlighting the key factors that will drive the economic recovery, the World Bank said: “In 2021, a robust rebound in the non-hydrocarbon sector is evident. The Purchasing Manager’s Index (PMI) registered positive growth in February 2021 and July-August. It averaged at the highest level in two years. The hydrocarbon sector also picked up pace as Opec+ production quotas were eased; oil production went up by 6% in August compared to Q1 2021.
“The health situation is improving with daily new cases below 1,000 in September for the first time since 2020. The successful vaccination drive, resumption of travel, relaxation of lockdowns, and large-scale monetary and fiscal measures have aided the recovery.”
The UAE’s current account balance dropped to 6 per cent of GDP in 2020 from 8.5 per cent in 2019 due to underperformance of both hydrocarbon and non-hydrocarbon exports mitigated by lower imports.
However, a rebound is expected in 2021 and the UAE’s external position remains strong, with official reserves equivalent to 5.9 months of imports as of December 2020, according to the World Bank’s latest update.
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