UAE growth set to accelerate in 2022

Economic growth of the UAE is expected to accelerate in 2022 as oil output rises with the non-oil sector offering further support on the back of a high vaccination rate, Expo-infused spending boost and jump in investment spurred by the government’s new reform agenda.

However, regional tensions, potentially volatile oil prices and the Omicron variant pose key risks, economists at FocusEconomics said.

“After a strong rebound in 2021, supported by healthier domestic demand, economic growth should accelerate this year as oil production rises. Moreover, a tighter labour market and pent-up demand will likely keep household spending growing briskly. That said, uncertainty surrounding the ongoing health crisis and volatile oil prices pose downside risks to the outlook,” they said.

FocusEconomics panelists forecast the UAE GDP to expand 4.5 per cent in 2022, which is up 0.1 percentage points from December 2021 forecast, and 3.7 per cent in 2023. They project consumer prices to increase 1.9 per cent in 2022, which is up 0.1 percentage points from last month’s forecast, and 1.7 per cent in 2023.

The Central Bank of the UAE expects the country’s economy to grow 4.2 per cent in 2022, accelerating from last year’s 2.1 per cent growth.

The central bank’s projection, in its latest quarterly report on the economy, is rosier than that of the International Monetary Fund, projects the UAE economy will grow three per cent this year.

Non-oil real GDP is expected to increase by 3.9 per cent, due to a continued increase in public spending, positive outlook for credit growth, higher employment and better business sentiment with a world fair Expo event in Dubai, the bank said in its website.

Steven Burke, Mena economist at FocusEconomics, said regional GDP growth is seen accelerating this year, as the vaccine rollout, looser restrictions and pent-up demand support investment and household spending.

Moreover, oil production is projected to increase robustly in 2022 as Opec+ further reduces production cuts.

Arne Pohlman, chief economist at FocusEconomics, said growth momentum likely picked up in the fourth quarter. The non-oil purchasing managers ’index (PMI) averaged at a more than two-year high in the quarter and hotel occupancy rates surged through November amid the ongoing Expo 2020, while Dubai residential real estate dynamics also improved.

“Moreover, the oil sector benefited from rising production as Opec+ curbs were eased, while higher oil prices buoyed government coffers—although the effect of higher prices on growth will likely be more restrained than in past years as the extra funds are channeled to longer-term investments rather than immediate spending.”

In addition, Pohlman, added, diversification efforts intensified in the quarter, with the latest reform a move to a Western-style working week. Nonetheless, heading into 2022 activity is likely being backed by Omicron, with Abu Dhabi recently tightening entry requirements.

— issacjohn@khaleejtimes.com