UAE oil output boost to offset Covid-19 impact: ICAEW
'We applaud UAE's proactive approach in fast-tracking the necessary economic relief measures'
The total impact of the escalating coronavirus pandemic on the UAE economy will be offset by the increase in oil production, following the collapse of the Opec+ deal, resulting in overall economic growth of 2.5 per cent in 2020, chartered accountancy body ICAEW said in one of the strongest forecasts in recent years.
As announced in March, Abu Dhabi National Oil Co. increased oil output to 4.03 million barrels per day effective April 1 from 3.52 million bpd in March in a bid to stabilise the oil market. The oil output increase is in line with a similar move by Saudi Arabia to raise production to 13 million bpd after Opec and its allies failed to reach a deal on production cuts when Russia refused to tighten supply.
ICAEW said in its Economic Update: Middle East Q1 2020, produced in partnership with Oxford Economy, UAE's the non-oil sector is expected to record just 0.1 per cent GDP growth, down from 2.5 per cent forecast previously. "This is due to the ramifications of the escalating coronavirus pandemic and the slump in oil prices temporarily impacting public spend."
"We applaud UAE's proactive approach in fast-tracking the necessary economic relief measures, in line with the International Monetary Fund and World Bank's recommendations for countries globally during the Covid-19 pandemic," Michael Armstrong, ICAEW regional director.
"We also commend His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, for his reassuring message to the country during these trying times and his support of the G20's $5 trillion global stimulus plan. We expect that these efforts will help ease the economic pressure on businesses and households so that they can bounce back quicker from this crisis," said Armstrong.
"Although the plunge in oil prices will temporarily affect the UAE public purse, the country's finances are robust enough to sustain spending during this temporary weakness. The Dubai Government started the year with its largest-ever budget, which underlined its commitment to a successful implementation of Expo 2020. The Abu Dhabi Government is also implementing its stimulus plan," said ICAEW report.
Noting that the number of coronavirus cases in the UAE is still limited, the report said the pandemic is taking its toll on activity.
"Momentum already slowed in the second half of 2019 and, in February 2020, the Purchasing Managers' Index (PMI) fell to its lowest level since 2009 debt crisis. With output levels contracting, further sharp declines are expected. Only 39 per cent of respondents of the latest PMI survey data were hopeful that activity would improve over the next year."
Nasser Saidi, former chief economist and head of External Relations of Dubai International Financial Centre, said policymakers across the GCC are rolling out stimulus measures to support businesses and the economy. "Central banks have focused on assisting small and medium-size enterprises by deferring loan repayments, extending concessional loans, and reducing point-of-sale and e-commerce fees. And GCC authorities have unveiled stimulus packages to support companies in the hard-hit tourism, retail, and trade sectors.'
The UAE has a consolidated package valued at Dh256 billion, while Saudi Arabia's is worth $32 billion. Moreover, policymakers are supporting money markets.
AbdulAziz Al Ghurair, Chairman of UAE Banks Federation, said CBUAE move to raise the economic stimulus will further mitigate the impact of the Covid-19 pandemic on the UAE economy. "By increasing liquidity in the banking sector, it will provide further stability in these uncertain times, and allow banks to offer additional lending and support to critical sectors of the economy."
ICAEW report said the tourism sector, a key pillar of the UAE non-oil economy, is looking particularly vulnerable now that the virus epicentre has shifted to Europe - which is a key market for inbound travel and tourism. The industry contributes over 10 per cent of GDP, directly and through its impact on the supply chain, as well as the spending its employees support. "Travel restrictions in place around the world and reluctance to travel from countries where restrictions aren't in place had caused tourist arrivals and hotel occupancy to slump significantly. With tourist attractions, restaurants, and shopping malls empty and operating on reduced opening hours, there is reduced scope for domestic visitors to compensate."
According to ICAEW economic update, any extension of restrictions would trigger further downgrades to the current forecast. "However, robust oil sector performance is expected to offset these declines. Like other regional producers, the UAE has had to abide by Opec-mandated oil production cuts, which has held back the contribution to growth from the oil sector. But with the Opec+ deal collapsing, oil output may rise by over eight per cent this year, the strongest pace since 2011," it said.
"The postponement of Expo 2020 Dubai eliminates one of the factors that could drive a strong economic rebound in the second half of this year.
However, a delay of up to a year poses a greater opportunity for success - which will result in a more significant overall contribution to the economy. We are hopeful that the global efforts to manage the virus will succeed," it said.
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