UAE on track for strong Q4 growth on back of non-oil sectors, say economists

The UAE is on track for strong growth in the fourth quarter of this year, helped by population increase, government spending and growth in transport, travel and tourism, trade and hospitality among other non-oil sectors, say economists.

The Central Bank of the UAE has projected 3.3 per cent growth for 2023 and 4.3 per cent for 2024. In October, the International Monetary Fund (IMF) projected that the UAE economy will expand by 3.4 per cent in 2023 and 4.0 per cent next year.

Khatija Haque, head of research and chief economist at Emirates NBD Research, said hotel indicators show a full recovery from the pandemic, with occupancy and revenue per available room well above pre-Covid levels.

“The outlook for the coming high season is also positive, with many hotels reporting full occupancy through Q4 2023, on the back of the COP28 event to be held in Dubai, and strong bookings for the first couple of months in 2024,” Haque said in a note.

James Swanston, economist for the Mena region at Capital Economics, said the UAE’s non-oil sector has been a strong point this year.

The UAE’s non-oil foreign trade reached a record Dh1.239 trillion in the first half of 2023, representing a growth of 14.4 per cent compared to the same period in 2022.

Similarly, Dubai GDP data for the second quarter also showed another expansion in output. It recorded real GDP growth of 3.2 per cent in the first half of 2023 as its second-quarter growth accelerated to 3.6 per cent year-on-year from the 2.8 per cent recorded in the first quarter.

Cautious about 2024

Khatija Haque said that higher interest rates, which have been consistently increased after the pandemic, have not so far significantly dampened non-oil growth in the UAE, although of course, there can be long and variable lags when it comes to the impact of higher interest rates on the real economy.

“With interest rates now expected to remain higher for longer into 2024 – given the apparent resilience of the US economy to tighter monetary policy – uncertainty around the outlook for 2024 remains high. Higher borrowing costs are likely to weigh on private sector consumption and investment, and a strong US dollar makes the region a more expensive destination for visitors from emerging markets,” said Haque.

However, she expects sustained government investment in strategic growth sectors to offset some of the expected softness in private sector investment next year and beyond.

Quoting Meed data, she added that Dh68 billion worth of infrastructure projects are underway and due to be completed by 2028, with another Dh116.3bn in planned stages through 2030.

“Overall, we expect non-oil sector growth to slow slightly from an estimated 5 per cent this year to 4 per cent in 2024. We also expect an unwinding of existing curbs on oil production in 2024, which should allow the hydrocarbons sector to contribute positively to headline UAE GDP growth of 3.6 per cent in 2024,” she added.

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