New report forecasts higher growth after a difficult 2017 when growth slowed to a seven-year low of 1.5%
The UAE economy is set to accelerate growth this year and in 2019 after a difficult 2017 when growth slowed to a seven-year low of 1.5 percent.
According to the The Institute of Chartered Accountants in England and Wales (ICAEW), the UAE's GDP is expected to accelerate to 2.6 percent growth in 2018 and to around 3.8 percent in 2019.
But the accountancy and finance body warned that general prices are expected to increase as inflation will rise to 4 percent this year.
Its Economic Insight: Middle East Q2 2018 report, produced by Oxford Economics, ICAEW’s partner and economic forecaster, said the UAE’s growth will be primarily driven by recovering oil prices, an expansionary fiscal stance at the federal and emirate levels, a buoyant trade and tourism environment and a pick-up in investment ahead of Expo 2020 in Dubai.
The oil sector contracted by 1.6 percent last year, mainly because of the OPEC+ mandate that saw the UAE cut its oil production by 150,000 barrels per day.
Given the extension of the OPEC agreement to the end of 2018, oil sector growth is expected to be limited this year, especially given the UAE’s increasing compliance with the production cuts, ICAEW said.
It added that the non-oil sector proved to be resilient last year despite the unfavourable macroeconomic environment and regional economic slowdown, growing by 3 percent.
The non-oil sector is expected to grow 3.7 percent in 2018, supported by improving business sentiments, a buoyant trade and tourism environment and higher public spending.
ICAEW said the outlook for the UAE’s tourism industry is "highly positive" while the UAE federal government is expected to increase spending by 5.6 percent year-on-year.
Dubai, which traditionally accounts for 25-30 percent of the UAE’s GDP, is also expected to lift spending by 20 percent in preparation for Expo 2020.
Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia (MEASA), said: “The UAE is on the right track to economic diversification and is implementing the necessary fiscal reforms to support these efforts. The introduction of VAT is an important step toward diversifying government revenue and building tax capacity.
"We’re also encouraged by the recent announcements to reform business ownership laws and residency visa rules. This will definitely help in attracting more foreign direct investment and in creating more stability in the market.”
According to the report, general price levels are expected to increase in 2018, as the introduction of VAT is expected to lift inflation to 4 percent this year.
The report added that the GCC’s economic prospects are promising this year thanks to rising oil prices, higher government spending and steady progress of economic reform.
Overall, the GCC’s GDP is expected to grow 2.3 percent this year, up from 0.1 percent last year, and as OPEC increases oil production, GDP growth is expected to accelerate further for oil exporters this year and in 2019.