Robust rise in capital spending, consumption to spur mild UAE rebound

Dubai - Employment levels remain stable in February

Economic conditions in the UAE appear to be muted during the first quarter of 2021, but gross domestic product (GDP) is set to rebound mildly this year from 2020’s slump driven by the non-oil sector, analysts at FocusEconomics said on Wednesday.

The recovery is expected to be on the back of robust growth in capital spending, coupled with continued government consumption. “The external sector should benefit from the gradual easing of global restrictions as vaccines are rolled out. However, tensions in the region cloud the outlook,” it pointed out.

In their Consensus Forecast Middle East & North Africa report, FocusEconomics panelists forecast GDP to expand 2.7 per cent in 2021, which is unchanged from last month’s projection, and 3.8 per cent in 2022.

“Following the easing of some restrictions at the outset of the year, domestic Covid-19 cases surged through January and February — likely due to new variants of the virus. As such, authorities tightened travel restrictions again in late January, requiring a negative test and self-isolation periods upon arrival. The non-oil private sector PMI reflected the impact of the new measures by dropping to a three-month low in February, signalling that the improvement in business conditions was only marginal,” they said.

More positively, employment levels remained stable in the same month, while the rapid vaccine rollout bodes well for activity ahead. In politics, relations between the UAE and Israel are moving forward, panelists noted.

Inflation is projected to return this year, although it will remain subdued nonetheless. Stronger household and capital spending should bolster price pressures later in the year. Panelists project consumer prices to increase 0.8 per cent in 2021, which is unchanged from last month’s estimate, and 1.9 per cent in 2022.

The IHS Markit Purchasing Managers’ Index ticked down to a three-month low in February, clocking in at 50.6 and down from January’s 16-month high of 51.2. Consequently, the index remained above the 50-point threshold, indicating an improvement — albeit only marginal — in business conditions in the non-oil private sector.

“February’s slowdown was a consequence of a spike in daily Covid-19 infections, which prompted the tightening of restrictions to curb the spread of the virus, tempering sales. As such, output increased only modestly in February as demand was muted due to containment measures,” said the report.

The Middle East and North Africa region, meanwhile, should rebound in 2021, the report noted.

“Oil exporters will likely gain from higher crude prices relative to last year and the reduction of Opec+ cuts, while countries across the region should benefit from the vaccine rollout and stronger demand abroad. However, geopolitical tensions, fragile fiscal positions and pandemic-related uncertainty pose downside risks.”

— issacjohn@khaleejtimes.com