The UAE and Gulf economies will stage a strong economic recovery next year as the Covid-19 pandemic induced challenges subside and non-oil sectors return to their pre-pandemic levels, according to reports.
Analysts and research reports pin high hopes on Expo 2020 to revive travel and tourism sectors of the region that will support swift recovery in the non-oil sector and diversify the GCC economies.
PwC Middle East in its latest Economy Watch, said the GCC economies are primed for growth due to buoyant oil and non-oil sectors. “A combination of factors are contributing to recovery across the region. Non-oil growth is a pivotal driver of this recovery; sectors such as financial services have emerged from the pandemic in a position of strength,” PwC report said.
When looking at Saudi Arabia, its large pool of domestic demand and the government’s commitment to the giga-projects is central to spurring economic recovery, it said.
“For the UAE, a critical marker for recovery in its travel and tourism sector will be in the visitor numbers achieved at Dubai Expo 2020, during the six month event -- which so far look positive and will undoubtedly boost travel and hospitality within the UAE,” according to PwC.
UAE growth to pick up
FocusEconomics in its monthly report also said the UAE economy should pick up next year as oil output rises, with the oil sector seen as dragging on overall growth this year.
Matthew Cunningham, economist at FocusEconomics, said non-oil sector should add further support, with private consumption buoyed by the strong vaccination campaign and the six-month-long Expo 2020 boosting tourism numbers.
“Heading into Q4, Expo 2020, which began in October, is likely boosting inbound visitor arrivals, aiding the UAE’s important and hard-hit tourism industry. The Expo also forms part of efforts to diversify the economy away from oil, amid the government’s commitment made in October to reach net-zero emissions by 2050,” Cunningham said.
“FocusEconomics panelists forecast UAE’s economic growth to expand 4.4 per cent in 2022 and 3.3 per cent in 2023 while non-oil GDP will be expanding 3.6 per cent and 2.8 per cent, respectively,” he said.
The IMF, in its latest forecast, expects three per cent GDP growth for the UAE in 2022 and 2023, respectively. The World Bank is more optimistic and sees 4.6 per cent growth next year and 2.9 per cent in 2023.
Diversification holds the key
Saad Maniar, senior partner at an audit and consulting firm Crowe, said oil and gas has been the most dominant industry historically. “Propelling the economic engine of the UAE, is its diversification drive and the investment in the infrastructure, which has ensured the economy is reducing its reliance on oil and gas,” Maniar said.
He said transportation, tourism, trade, retail and real estate are the five key drivers of economic growth, particularly for Dubai.
“Tourism is a major contributor in the growth of Dubai and is a part of the Dubai government’s strategy to maintain the flow of foreign income into the Emirates. The tourism sector contribution which shrunk during Covid-19 in the past two years has picked up momentum with the Expo 2020 and other mega events like Indian Premier League, Cricket World Cup, Gitex, Gulfood and many more. This momentum is likely to continue as global market is on recovery and is expected to grow exponentially,” he said.
He said financial services, though not one of the five key drivers, but it cannot be undermined and in my opinion will play a major role, as DIFC and ADGM continue to take the position as world class financial centres.
“Both the financial centres have been heavily investing to promote ‘Innovation and fintech’ companies, which will contribute to significant economic growth in years to come.
“As the UAE mark the Year of 50, we continue to see the strategy evolve with the visionary leadership and more importantly their implementation, which played a fundamental role as an enabler in the success of this nation,” Maniar said.
Key growth drivers
Shailesh Dash, a Dubai-based financier and entrepreneur, said tourism, trading, financial, real estate and investments will be main growth drivers for the UAE economy in coming years.
“Tourism is boosted by the infrastructure built in UAE and the attractiveness of the country among world population while boost in trading with the excellent modern supply chain network will also benefit the economy,” he said.
He said migration of the rich as well skilled population to UAE attracted by the government policies as well as the excellent handling of the pandemic in UAE have also benefited the economy.
“Many other associated sectors such as real estate and Investments will also naturally add to the GDP of the country,” Dash said.
Higher oil to benefit GCC
FocusEconomics report further said regional GDP will grow robustly this year as oil exporters are set to gain from higher average crude prices and the easing of Opec+ cuts. “In 2022, growth across the region should accelerate as the vaccine rollout and pent-up demand support domestic activity. Moreover, oil output should rise next year as Opec+ further reduces production cuts,” according to FocusEconomics report.
PwC Middle East said the recovery in oil prices to their highest sustained level since 2014 and the tapering of production cuts by Opec+ are also helping drive a solid improvement in public finances that will benefit the region’s economies.
Richard Boxshall, Middle East chief economist at PwC Middle East said economic diversification has been a core focus of GCC governments in recent years.
“As we see signs of growth in both non-oil and oil sectors, the region looks set to achieve a swift recovery. However, travel and tourism, a critical industry, is lagging in terms of its recovery but the reopening of travel looks set to boost this and all eyes are on Expo 2020, which will be an important milestone within the travel sector’s recovery,” Boxshall said.
A flurry of IPO activity
Following a scarcity of IPO activity across exchanges in the region, 2021 has seen a surge of major IPOs with Saudi Arabia and Abu Dhabi leading the pack, according to PwC Middle East report.
“The current shift shows growing confidence in the region, as a result of high oil prices and the Covid-19 recovery, together with high global equity valuations as well as the need for government entities to raise financing. Increased investor confidence and appetite is a positive indicator in trust in a continued economic recovery,” the report said.
Stephen Anderson, Middle East clients and markets leader, said signs of recovery for the remainder of 2021 remain strong, with key leading indicators showcasing growth.
As oil prices help rebalance fiscal budgets for GCC governments this will further support economic growth. The increasing activity of capital markets in the region, particularly around IPOs is testament to investor confidence and the growth potential of companies across the region,” Anderson said.
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