Short-term recovery prospects of the UAE have been hampered by new restrictions in the wake of resurgence in Covid-19 cases, but the economy will continue to expand steadily over the medium term, according to economists at Oxford Economics.
The optimism about a medium-term recovery is due to three main factors, including effective vaccination drive, a marked rise in the number ‘staycationers’ and a surge in travel to Dubai, economists at Oxford Economics observe in a report.
The surge in travel to Dubai in the fourth quarter of 2020 illustrated the willingness of people to start travelling again.
“This also bodes well for the success of Expo 2020, rescheduled to October this year, which will create an opportunity for a faster recovery in Dubai. Improved relations with Qatar and Israel will also boost visitor numbers,” the report said.
“These factors, combined with government policy reforms that will stimulate growth in the rest of the non-oil economy, mean that a robust economic rebound is expected, with non-oil GDP growth forecast to rise above 5.0 per cent in 2022,” said the report.
The report noted that the travel and tourism sector, which accounts for approximately 16 per cent of overall GDP in the UAE, will have a difficult first half of 2021 due to the new Covid-19 restrictions. The relative normality of day-to-day life in Dubai and the easing of travel restrictions such as an air corridor with the UK, led to a rebound in the tourist sector at the end of 2020 with hotel occupancy rising strongly, but it has since taken a hit.
“The first quarter of 2021 has been challenging due to the need to tighten restrictions in response to soaring Covid-19 infections and the oil GDP slump. However, we are encouraged to see the rapid roll-out of Covid-19 vaccines by the UAE government. While the economy continues to be affected by the re-imposed travel bans, a successful vaccination programme will be a great step in restoring confidence in the UAE in 2021,” said Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia.
The UAE economy had been relatively disappointing since the start of this year, due to the government having to tighten restrictions in response to soaring Covid-19 infections.
“These restrictions have prompted a downward revision to Oxford Economics’ UAE growth forecast for 2021, but GDP is predicted to grow by 5.5 per cent in 2022, as both oil and non-oil sectors pick up again strongly,” the report, commissioned by ICAEW, said.
According to projections, the UAE’s non-oil GDP is expected to expand by 3.3 per cent in 2021, down from 4.2 per cent predicted three months ago. Given the on-going oil GDP slump, total GDP will be flat this year, after an estimated fall of 7.7 per cent in 2020, the biggest fall in three decades.
Scott Livermore, chief economist at Oxford Economics, said the UAE already stands out for investment appeal in the region, outpacing its peers when it comes to Foreign Direct Investment inflows, and the new laws will help target sectors to attract and retain foreign investment and talent. “However, we believe there is room for improvement. To boost recovery, the UAE government must remain proactive in implementing the necessary fiscal reforms aimed at achieving economic diversification, and continue to support their economies with pro-growth initiatives.”
Analysts at FocusEconomics are also confident of a GDP rebound mildly this year from 2020’s slump driven by the non-oil sector. 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,” they said.
Oxford Economics report noted that a 5.3 per cent cut in spending in the federal budget for 2021 underplays the likely level of government support to the economy this year. The federal government only accounts for around 15 per cent of public spending in the UAE, and the Abu Dhabi and Dubai governments will be heavily supportive of growth.
The report outlines that concerns over resurgent Covid-19 cases are weighing on business optimism. Despite an improvement in employment, it will be difficult for these gains to hold against the backdrop of weakening retail industry and recreation activity
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