After a slow start, UAE on recovery track
The Expo 2020 is forecast to contribute up to 1.5 per cent of the UAE's overall GDP in 2020.
The UAE non-oil private sector output failed to grow for the first time in 10 years in January with the latest purchasing managers index showing a decline in orders, according to a survey by IHS Markit.
Most analysts, however, believe that the UAE's non-oil sector is poised to recover this year as global growth bottoms out and the World Expo rolls into Dubai. The Expo 2020, which is anticipated to attract 25 million visitors (14 million from overseas), is forecast to contribute up to 1.5 per cent of the UAE's overall GDP in 2020.
The headline seasonally adjusted IHS Markit UAE Purchasing Managers' Index (PMI) dropped from 50.2 in December to 49.3 in January, falling below the crucial 50.0 no-change mark for the first time since August 2009.
The IHS Markit survey showed that workforce numbers dropped at one of the strongest rates on record, while selling prices were lowered for the 16th month running.
David Owen, Economist at IHS Markit, said the UAE PMI continued to worsen in January, and this month fell below the 50.0 mark that separates growth from contraction for the first time in over ten years.
"Key to the decline was firms' efforts to reduce employment at one of the fastest rates on record in order to streamline costs. Input prices continued to rise while output charges dropped, placing notable pressure on margins," said Owen.
The survey report showed weakened business expectations though firms remained broadly upbeat. "Overall, the headline index signalled a slight deterioration in business conditions."
The report said notable weakness was observed on the demand side again in January, with total new orders falling for the second time in three months. Firms reportedly struggled to gain sales amid a slow business environment, in particular within the domestic economy.
"Despite lower prices, new orders fell for the second time in three months in January, adding extra pressure on businesses and halting output growth. Looking ahead, it is hoped by many firms that the upcoming Expo 2020 will restore new business volumes and kick-start activity. Another bright note is growing momentum in export sales, which businesses have attributed to stabilisation in some international markets," said Owen.
The report noted that new orders from abroad grew for the third month in a row and at a faster, albeit modest, pace than in December as respondents commented on better conditions among trade partners. As such, the drop in total new business was only fractional. Nevertheless, firms responded by leaving output levels unchanged in January, ending a prior sequence of growth that had lasted for almost ten years. While a number of companies restricted output due to lower sales, ongoing projects sustained activity at other businesses.
In addition, employment at UAE companies fell at one of the quickest rates on record at the start of the year.
According to ICAEW's latest Economic Update, the outlook for UAE's economy remains promising, with economic growth expected to accelerate in 2020. Most analysts believe that investment climate remains positive with infrastructure upgrades.
With a GDP of $414 billion in 2018, the UAE has been successfully diversifying away from oil, which accounted for more than 85 per cent of the economy in 2009. The UAE Ministry of Economy has predicted that the share of the non-oil sector in the GDP to rise to 80 per cent by 2021, compared to 70 per cent in 2017.
A massive construction boom, an expanding manufacturing base, and a thriving services sector are helping the UAE diversify its economy while tourism continues to be a key non-oil source of revenue with some of the world's most luxurious hotels being based in the UAE. Nationwide, there is currently $350 billion worth of active construction projects underway.
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