The UAE should also benefit from a robust tourism sector, particularly in Dubai
The UAE economy will see consecutive higher growth for the next two years and the highest in developed oil exporting Mena region in 2020 on the back of rising oil prices, infrastructure spending, stimulus package, friendly reforms, new investment law and good growth in non-oil sector, according to global think-tanks.
Projecting one of the highest growth in the oil-exporting GCC countries in 2018-19, World Bank analysts have forecast 2 per cent real GDP growth for 2018 which will jump to 3 per cent in 2019 and 3.2 per cent in 2020.
FocusEconomics said the UAE economy is poised to gain steam in the third quarter, thanks to an increase in Opec oil production targets in June as reflected by a noticeable rise in oil output in July and August.
"Higher investment and public spending are likely to drive growth higher this year and the next. Particularly, infrastructure investment related to the country's preparation to host the Expo 2020 Dubai will support the outlook, buttressing the construction sector. Furthermore, recent business-friendly reforms and a new investment law to be introduced in Q4 are poised to boost investor confidence and support higher FDI inflows," Focus Economics analyst said in their latest note.
The UAE should also benefit from a robust tourism sector, particularly in Dubai, and rising oil production amid high global demand. Focus Economics panelists expect GDP to increase 2.4 per cent in 2018, before accelerating to 3.0 per cent in 2019.
The GCC region will also benefit from the rise in oil prices and reforms announced by key countries such as Saudi Arabia and the UAE. World Bank analysts expect the GCC to grow from 2.0 per cent in 2018 to 2.5 per cent next year and 2.7 per cent in 2020. While growth in the Mena region is projected to rebound to an average of 2.0 per cent in 2018, up from an average 1.4 per cent in 2017.
Last week, the International Monetary Fund (IMF) hiked the UAE's growth forecast from 2.0 per cent to 2.9 per cent for 2018 and from 3.0 per cent to 3.7 per cent for 2019.
Rajiv Kumar, senior executive officer, PhillipCapital, said the UAE's focus on economic growth in non-oil sector has started delivering.
"Oil is moving up rapidly and geopolitical reason points towards further rally [in oil prices]. This combination of oil and non-oil based revenue should smoothly drive the UAE economy in the next couple of years and should help in increasing government spending. An increase of 47 per cent in allocation for infrastructure in 2018 budget by Dubai government ahead of Expo 2020 is a step in this direction. The infrastructure allocation will cover the development of the main expo building and supporting service projects such as roads, bridges, sewage, transport and metro lines as well as preparing the area for post-expo events, according to the budget statement. With this in mind, we should see a huge inflow of investments prior to the expo and beyond," Kumar added.
Since the UAE houses world-class equity and derivative exchanges, Kumar says the role of capital markets is vital for inclusive growth in terms of wealth distribution and making capital safer for investors.
Kumar believes growth in tourism, education, healthcare and community well-being will be other major sectors contributing towards the economy in the coming years.
He hoped that tourism, e-commerce, transportation and logistics, healthcare, insurance, education and energy industries should ideally witness the highest growth in the coming years.
Mahmood Bangara, president, The Institute of Chartered Accountants of India (ICAI) - Dubai Chapter, pointed out that service industry has grown to 55 per cent now with its major elements like tourism, aviation, shipping, logistic and free zones.
"We expect these sectors to grow and Expo 2020 like initiatives will give fillip to these segments. The UAE will benefit from increased crude prices and spill of oil revenue from neighboring countries for investment and trade, boosting the economy," Bangara added.
However, World Bank analysts are concerned that this slow pace of growth will not generate enough jobs for the region's large youth population and new drives are needed to reach the level of job creation required.
"Far too many of the region's young men and women are unemployed," said Ferid Belhaj, vice-president for Mena, World Bank.
This challenge will continue to grow unless it is turned into an opportunity. The current growth momentum is a chance to increase the speed and ambition of reforms. The focus should be on building a modern economy that leverages new technology and is driven by the energy and innovation of young people," Belhaj added.
"Countries in the region possess all the ingredients they need to leapfrog into the digital future," said Rabah Arezki, World Bank chief economist for the Middle East and North Africa Region and lead author of the report.
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