Hydrocarbon sector production to be boosted from 2022 as Opec+ oil production limits are lifted and new gas production comes on stream
UAE - The UAE’s real gross domestic product is expected to recover to 2019 levels by 2023 as a sharp drop in tourism and real estate activities — two key mainstays of the non-oil sector — will drag down the economy in 2020, according to economists and analysts.
The $414 billion UAE economy, dominated by Abu Dhabi (59 per cent of 2019 GDP) and Dubai (28 per cent), has been projected to contract 6.6 per cent in 2020 followed by a slight rebound of 1.3 per cent in 2021 by the International Monetary Fund.
The Washington-based Institute of International Finance, meanwhile, expects the UAE to experience a contraction of 5.7 per cent in 2020, followed by a modest recovery of 3.1 per cent in 2021.
S&P Global Ratings said in a recent report that Abu Dhabi can expect a gradual economic recovery from 2021, but with real GDP only to recover to close to 2019 levels by 2023.
“Hydrocarbon sector production will be boosted from 2022 as Opec+ oil production limits are lifted and new gas production comes on stream. Non-oil sector recovery will be driven by public investment in manufacturing particularly petrochemicals, logistics, and construction,” Trevor Cullinan, director at S&P Sovereign Ratings, wrote.
The report noted that because of Opec+ cuts, Abu Dhabi’s oil production will decline to an average 2.8 million bpd in 2020, from 3.1 million in 2019. Non-oil sectors such as real estate, trade, retail and hospitality will contract sharply this year.
According to S&P, Dubai’s economy would contract sharply in 2020, owing partly to the importance of travel and tourism, two of the industries most affected by Covid-19.
“We expect broad declines across practically all other sectors. The delayed Expo 2020, which will now take place October 1, 2021-March 31, 2022, should provide a platform for a recovery in activity.”
The ratings agency projected Dubai’s real GDP to recover to 2019 levels by 2023.
“The hydrocarbon sector plays only a limited direct role in Dubai’s economic activity, but an important indirect one because of the impact of oil prices on regional demand.”
The report discussed how an overall modest GCC economic growth through 2021-23 is to be led by the non-hydrocarbon sector, expecting a modest economic recovery throughout that time with real GDP growth of 2.5 per cent, after a contraction of about six per cent in 2020.
The hydrocarbon sector accounts for close to 40 per cent of the GCC’s real GDP.
“We expect a broad recovery across hydrocarbon and nonhydrocarbon sectors, over the period to 2023. Our base case assumption is that Opec+ production cuts, amounting to about 17 per cent of October 2018 production, end in April 2022. Our current assumptions see Brent oil prices averaging $50 in 2021-2022 and then $55 in 2023 and beyond,” said the report.
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