UAE GDP to shrink more than previously forecast, to grow by 2.5% in 2021 - central bank

December 23, 2020 610

Business disruptions triggered by the pandemic as well as lower oil prices have contributed to the lower expected GDP

The UAE's GDP is estimated to shrink about 6 percent this year, compared to a previous forecast of a decline of 5.2 percent, the central bank said in its quarterly review on Tuesday.

Business disruptions caused by the coronavirus pandemic as well as lower oil prices have contributed to the lower expected GDP of the UAE, but the economy is expected to grow 2.5 percent in 2021.

"Economic activity in the UAE recovered partially in the third quarter, albeit the bounce back remained fragile. CBUAE projected real total GDP growth for the year 2020 to be around -6 percent, with the real non-hydrocarbon GDP projected to decline by around 5 percent. For 2021, CBUAE foresees real total GDP to grow by 2.5 percent and non-hydrocarbon real GDP by 3.6 percent. However, economic projections include exceptional uncertainty amidst COVID-19 repercussions and are thus subject to revisions," CBUAE said in its quaterly review.

The outlook is slightly better than forecasts from the IMF, which expects a decline of 6.6 percent this year.

The key takeaways from the report include:

  • Real GDP is projected to recover to 2.5 percent in 2021, with non-oil GDP growing by 3.6 percent and oil GDP remaining flat following OPEC+production schedule.
  • Real non-oil GDP growth is expected to be driven by increasing fiscal spending, pick up in credit and employment, relative stabilization of the real estate market, boosted by recovery in confidence and the Dubai EXPO 2021.
  • More significant economic improvement of the non-oil sector is expected to start in Q4 2020, conditional on the containment of the virus.
  • Banks’ credit growth is foreseen to increase, together with slower annual real estate price decline and pick-up in employment. 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 show a recovery of occupancy and revenue, the best performance achieved since March 2020, and the improvement is expected to continue further.

"As an oil exporter, the UAE is likely to feel the fallout from reduced global demand for oil due to the contraction of economic activities worldwide, including transportation and international travel. UAE oil production fell by 4.1 percent Y-o-Y in Q2 and by 17.7 percent in Q3, in line with the agreement by OPEC+," according to the central bank report. "Real oil GDP is projected to contract in 2020, corresponding to an average oil production of 2.8 mb/d for the year as a whole," it said.

Zawya