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UAE economic activity recovers partially in Q3 2020, says Central Bank

Dubai - Apex bank sees 2.5% growth in 2021, led by 3.6% non-oil GDP growth

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The UAE economy will grow 2.5 per cent next year, led by 3.6 per cent growth in non-oil sector as the economic activity in the country recovered partially in the third quarter of 2020, the UAE Central Bank said in its third quarter report.

The apex bank projected six per cent contraction in economy for 2020 with non-oil GDP declining by around five per cent. It is higher than 5.2 per cent contraction projected in the previous forecast. However, six per cent contraction is still better than International Monetary Fund’s 6.6 per cent for the UAE this year.

The Central Bank foresees better economic performance in the fourth quarter of 2020, depending on the containment of the Covid-19 pandemic.

“During the third quarter of 2020, economic activity in the UAE recovered partially, after the waiver of lockdowns in the country and the resumption of international travel. This benefitted the UAE, given its role as a regional trade, transportation and travel hub. Manufacturing production was also boosted as the supply chain resumed from the disruptions seen in the second quarter,” it said, adding that the recovery was not as robust as expected.

“Real non-oil GDP growth is expected to be driven by increasing fiscal spending, pick up in credit and employment, relative stabilisation of the real estate market, boosted by recovery in confidence and the Dubai Expo 2020. More significant economic improvement of the non-oil sector is expected to start in the fourth quarter of 2020, conditional on the containment of the virus,” it said in the quarterly report.

“Sentiment is expected to improve in preparation for the Dubai Expo which was postponed to 2021. Better tourism and hospitality data in Abu Dhabi in October showed a recovery of occupancy and revenue, the best performance achieved since March 2020, and the improvement is expected to continue further,” it added.

The Central Bank said banks’ credit growth will increase, together with slower annual real estate price decline and pick-up in employment.

Banking indicators strong

Most banking indicators also improved in the third quarter, helped by the enhanced Targeted Economic Support Scheme (TESS) extended by the Central Bank to local lenders. Bank deposits increased by 5.8 per cent, led by the government and government-related entities. Meanwhile, credit increased by 4.9 per cent, supported by healthy financial soundness indicators.

Inflation remained negative for the third quarter at –2.4 per cent, driven by decline in rents and in the price of fuel and recreation and culture, in tandem of overall subdued domestic demand. Real estate prices continued to decline, while dirham depreciated, in both nominal and real terms, in line with the weakening of the US dollar.

With regard to the fiscal stance in Q2 2020, the most recent period for which data is available, the net operating fiscal balance recorded a surplus at Dh4.2 billion, despite fiscal revenues declining by 41.3 per cent year-on-year to Dh85.1 billion, while expenditures declined by 14.4 per cent to Dh80.9 billion.

Remittances decline

Outward personal remittances declined by 7.7 per cent or Dh3.3 billion in the third quarter of 2020, compared to the same period in 2019. There was a reduction in transfers through exchange houses by Dh6.9 billion, while outward remittances through banks increased by Dh3.6 billion.

The top three destination countries were India (30.8 per cent), Pakistan (11 per cent) and Egypt (6.5 per cent). With the exception of India, where outward personal remittances declined on an annual basis by 27.8 per cent, there was an increase by 1.6 per cent in outward remittances to Pakistan and by 1.4 per cent to Egypt.

waheedabbas@khaleejtimes.com