Oxford Economics, commissioned by ICAEW, forecasts 1.1% growth in 2021 in the UAE, in comparison to a GDP forecast for 2020 of -7.8%; the weakest projection for the UAE in over three decades. As global recovery from the Covid-19 pandemic stalled, with a second wave seen in various parts of the world and virus containment measures being re-imposed in many economies, the outlook for the UAE economy remained challenging.
Declines in oil activity and Dubai’s tourism sector are expected to stunt economic growth. However, Google mobility trends indicate a rise of activity over the past couple of months as restrictions continue to ease across the country – especially in the important workplace and retail and recreation sectors. This is consistent with the Purchasing Managers’ Index that separated expansion from contraction in the non-oil sector and indicates stalling of growth momentum as 2020 draws to a close.
The updated OPEC+ agreement sees UAE oil output rising only slightly in January from the production quota for the second half of 2020. This means the oil sector will continue to be a drag on growth, though output decline will moderate next year and recover thereafter. The slow pace of recovery continues to hinder employment dynamics. A recent survey by Mercer, a human resources consultancy, found that 30% of businesses in the UAE plan to reduce their workforce, with the biggest cuts planned in the retail sector. This indicated that while the expat exodus may be abating, it will not be reversed until next year when a sustained recovery from Covid-19 takes hold.
The tourism sector, a key pillar of the UAE non-oil economy, accounts for approximately 16% of the country’s GDP, both directly and indirectly via its impact on the supply chain and the spending it supports. Despite a significant rise in staycations among UAE residents, hotel occupancy rates are well below a year ago, and visitor numbers were expected to continue to fall by 60% in 2020.
Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia, said: “As a regional travel and tourism hub, the UAE economy will continue to be affected by the re-imposed bans and restrictions placed across Europe and elsewhere. However, the delay of Expo 2020 Dubai could play a huge role in the country’s economic rebound, providing a greater opportunity for success. The increase in inbound tourists to the country should result in a more significant overall contribution to the economy.
“Despite oil production cuts and lower oil prices, the UAE has enough financial reserves to maintain fiscal support for the economy through 2021, possibly benefiting growth in the longer term. The UAE authorities also seem primed to support the economy in the recovery phase – including preparation for Expo 2021 and funding for new projects that contribute to economic diversification and digital transformation.”