Tourism, hospitality and retail set to reap the benefits of six-month long mega event
The UAE economy is expected to accelerate next year as Expo 2020 Dubai bolsters the tourism, hospitality and retail sectors, however geopolitical tensions in the region and a potential further extension or deepening of Opec production cuts pose downside risks to the outlook, according to a latest FocusEconomics report.
FocusEconomics panelists expect gross domestic product (GDP) to increase 2.4 per cent in 2020 and 2.5 per cent in 2021. They also expect fixed investment to grow 4.1 per cent in 2020, which is up 0.4 percentage points from September's forecast.
The International Monetary Fund (IMF) projected a 2.5 per cent growth rate over the next five years till 2024. The UAE Central Bank also revised the country's forecast upward by 0.4 per cent to 2.4 per cent for 2019 following a strong growth in the first quarter, led by the oil sector.
The IMF, which concluded its Article IV visit in early November, recognised the government efforts to promote the non-oil economy, such as allowing full foreign ownership in selected sectors.
However, the fund noted significant strides are still needed. On the fiscal front, it pointed out current stimulus levels were appropriate, but suggested strengthening fiscal frameworks to ensure long-term fiscal sustainability.
"Growth likely expanded at a softer pace in the second quarter as ongoing compliance with Opec production cuts seemed to drag significantly on the energy sector. Conversely, the non-energy economy appears to have accelerated as the non-oil sector PMI surged in second quarter," said Steven Burke, economist at FocusEconomics.
"Turning to second half of 2019, growth is expected to be slowing further. The non-oil sector PMI posted the joint-lowest reading since May 2010, due to paltry demand and weaker output growth," he said, adding that volatile oil prices represent a degree of uncertainty for the UAE economy.
PMI steady in October
The IHS Markit Purchasing Managers' Index (PMI) was steady in October at September's 51.1. Thus, the index remained above the 50-threshold that separates expansion from contraction in the non-oil producing private sector. In October, growth in new orders fell to a series record low, as export orders declined for the first time since April 2018 amid a subdued global growth outlook.
Moreover, both output and employment levels increased at a tepid pace in October. Business prospects of future production levels improved in October, but remained relatively subdued nonetheless, the report said.
On the price front, input prices ticked up, while output prices continued to fall as firms tried to entice demand. "Next year, the non-oil private sector will likely gain some impetus as solid fiscal support, a dovish stance taken by major central banks and Expo 2020 continue to underpin the non-oil private sector. Nevertheless, heightened global economic uncertainty poses a downside risk to the outlook," Burke said.
