UAE economy to grow at faster pace

High oil prices and increased crude output will boost the UAE’s economic growth this year and the next, say economists.

Dubai’s largest bank Emirates NBD raised the UAE’s growth forecast on the back of high oil prices and the country’s capacity to increase production.

“The UAE has significant capacity to ramp up oil production from current levels of 2.9 million per day at end of January 2022. But, we expect the country will maintain the steady 20,000-30,000 barrels per day increase we have seen in recent months for the rest of this year. This implies a 10 per cent increase in crude oil production this year relative to average 2021 output of 2.7 million bpd,” said Khatija Haque, head of research and chief economist at Emirates NBD Research.

Emirates NBD also upgraded its oil GDP forecast to 10 per cent in 2022 from six per cent previously but kept the non-oil growth forecast unchanged at four per cent. Hence, the headline GDP growth was raised to 5.7 per cent in 2022, up from 4.6 per cent previously.

Oil prices were trending higher on Monday evening a 6pm UAE time with WTI Crude at 91.65 per barrel, up 0.64 per cent, while Brent was up by 0.62 per cent to $94.12 a barrel. Oil prices have been consistently rising since December 3, 2021, when prices had dropped to $66.26 a barrel.

“Our 2023 GDP growth forecast has also increased to 6.1 per cent from 4.9 per cent previously, on the assumption that oil production will continue to rise to reach the UAE’s 3.5 million bpd baseline level by the end of next year. Our non-oil sector GDP forecast is unchanged at 4.5 per cent in 2023,” Haque said in the latest note on the UAE and Gulf economies.

Last week, the International Monetary Fund (IMF) projected real GDP growth of 2.2 per cent for 2021 and 3.5 per cent for 2022 and non-oil GDP growth of 3.2 per cent and 3.4 per cent for 2022 and 2023, respectively.

In addition, Opec+ is also expected to add production this year, unwinding its pandemic-related cuts.

“Our expectation now is that the Opec+ countries that can hit their target levels will increase production, meaning upward revisions to our oil supply growth forecasts for Saudi Arabia, the UAE and a few others,” added Edward Bell, senior director for market economics at Emirates NBD Research.

Budget surplus

As a result of high oil prices and increased production, the UAE is expected to post a budget surplus. The IMF expects public sector revenues will increase from 30.7 per cent of GDP in 2021 to 30.9 per cent in 2022 while expenditures will shrink to 31.4 per cent to 31.1 per cent of the GDP during the comparative period.

The US-based lender expects the UAE’s overall fiscal deficit to narrow to 0.7 per cent of GDP in 2021 and shift into a small surplus by 2024.

“These improvements reflect revenue gains from current and expected higher oil prices and stronger economic growth alongside modest fiscal reform efforts. Higher oil prices will also benefit the current account balance, which is projected to increase to 10 per cent of GDP in 2021, in line with pre-crisis levels, and remain positive at around 8.5 per cent of GDP in the medium-term,” it added.

Similarly, Emirates NBD also revised upward its estimate for the full-year budget surplus to 3.6 per cent in 2021, up from 1.2 per cent previously.

“We also expect a larger surplus in this year’s budget than previously; we now estimate the budget balance at 4.1 per cent of GDP this year, up from 1.5 per cent previously.”

— waheedabbas@khaleejtimes.com