The UAE economy is poised for its strongest growth in 11 years after growing 8.2% in the first quarter
The UAE’s economy is expected to post its strongest annual expansion since 2011 after growing 8.2 percent in the first three months of this year on higher oil prices and containment of the impact of the pandemic.
Growth in the first quarter was driven by a sharp increase in oil production as well as a noticeable improvement in real non-oil gross domestic product, the UAE’s Central Bank (CBUAE) said in its latest Quarterly Economic Report 2022.
The Arab world’s second largest economy, which grew 3.8 percent in 2021, is expected to grow 5.4 percent and 4.2 percent in 2022 and 2023, respectively, according to the regulator’s latest forecasts.
The IMF forecasts the UAE’s economy to grow 4.2 percent this year, while Emirates NBD forecast growth of 5.7 percent and Abu Dhabi Commercial Bank forecast growth of 6 percent, helped by a sharp rise in the oil sector . A 6 percent expansion would be the highest since 2011, when the economy grew 6.9 percent.
ADCB recently upgraded its growth estimates “on stronger oil sector growth prospects.
Edward Bell, senior director of market economics at Emirates NBD, said the lender also expects oil production to continue to rise as Opec+ production ramps up and the UAE invests more in upstream capacity, both for oil and natural gas .
There’s a higher likelihood of stronger growth, the CBUAE said, due to oil production, higher prices and government initiatives to double the size of the manufacturing sector by 2031.
Oil prices have hovered at or above $100 a barrel since the Russian military offensive in Ukraine began in February. Brent, the main benchmark for two-thirds of the world’s oil, rose to nearly $140 in March and is up about 36 percent year-to-date.
UAE oil production averaged 2.95 million barrels per day in the first quarter and the country’s hydrocarbon GDP is estimated to have risen 13 percent year-on-year, CBUAE data showed.
“Depending on the trajectory of global economic activity, recession expectations and geopolitical tensions, there may be room for increased oil supply to balance markets and boost global growth,” the central bank said.
Market dynamics, the pandemic and the now five-month war in Ukraine have prompted the International Monetary Fund, the World Bank and the Institute of International Finance to lower their forecasts for the global economy this year.
Based on the current supply and demand dynamics in the global oil market, the CBUAE forecasts that oil GDP will grow by 8 percent and 5 percent in 2022 and 2023, respectively, depending on the outcome of the Ukraine conflict and further economic recovery after covid .
The UAE’s non-oil sector has also accelerated sharply, growing more than 6 per cent in the first three months of the year, largely due to the containment of Covid-19, the easing of pandemic-related restrictions, the Dubai Expo and the recovery in global travel. according to CBUAE.
For 2022 and 2023 as a whole, the CBUAE forecasts that non-oil GDP will grow by 4.3 percent and 3.9 percent, respectively.
Despite increasing economic headwinds with a weakening global growth environment, a strong US dollar, rising interest rates and higher inflation, the ADCB sees “strong momentum and continued supported overall sentiment into the second half of 2022,” Ms. Malik said about the non-oil of the UAE economy.
“We still see a number of supportive factors such as pent-up demand for international travel, while Qatar’s hosting of the FIFA World Cup will also be a key supportive factor,” she said.
Along with the oil price surge, higher government and private spending are driving GDP growth, the CBUAE said.
Higher government revenues are expected in 2022 given the rise in oil and gas prices and the expected increase in production, which will further boost government spending.
The UAE economy also benefits from a vibrant private sector, supported by sweeping reforms and a labor market that attracts the best talent.
UAE banks staged a strong recovery in the first quarter of this year, with robust loan growth and significant margin gains, helped by a rising interest rate environment.
“The business situation survey shows that the business outlook in the first quarter of 2022 was bullish on all parameters,” the CBUAE said.
The UAE Average Purchasing Managers’ Index remained in expansionary territory above the neutral 50 mark in Q1 and Q2 2022. The S&P Global UAE PMI stood at 54.8 in June.
The central bank called the rising inflation in the country parallel to the global trend.
The consumer price index (CPI) rose 3.4 percent in the first quarter of 2022, compared with 0.6 percent and 2.3 percent in the third and fourth quarters of 2021, respectively. Inflation is expected to reach 5.6 percent in 2022, the CBUAE said.
The CBUAE report found that the pricing mechanism put in place by the Commerce Department, aimed at curbing sharp fluctuations in food commodities, is making a significant contribution to curbing inflation.
The impact of imported inflation will be mitigated by the fact that the UAE dirham is pegged to the US dollar, the CBUAE said.
As the US dollar appreciated by around 10 percent against a basket of international currencies in the first quarter of 2022, the UAE dirham has also appreciated and hence UAE imports will be cheaper, limiting the spill-over effect of global inflation on inflation the UAE, it said.
The UAE was one of the first countries to introduce a series of monetary policy measures and fiscal stimulus that allowed it to recover strongly. The recovery has been fueled by measures to contain the pandemic and Dh388 billion (US$105.72 billion) in fiscal and monetary support since the global health crisis began.
Fiscal and monetary support measures for businesses and individuals include the central bank’s Dh50bn targeted economic support program to boost liquidity in the financial and banking sectors, parts of which have been extended until June this year.
Updated July 21, 2022 at 9:33 am
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