Emirates NBD has raised its forecast for the UAE’s economic growth to 7 percent this year, due to higher estimates of oil industry production and “strong growth” for its non-oil sector, making the country witness its fastest annual expansion in more than a decade.
Dubai’s largest bank adjusted an earlier estimate of 5.7 percent, making the growth the highest since 2011 when the economy grew by 6.9 percent.
UAE’s central bank expects the country’s economy to grow by 5.4 percent and 4.2 percent in 2022 and 2023, respectively after expanding by 3.8 percent in 2021.
Khadija Haq, Chief Economist at Emirates NBD, said: “The UAE economy has grown faster than we expected at the beginning of the year, both in the oil and non-oil sectors. While we expect the pace of growth to be moderate throughout the year, particularly in the second half, we have revised our 2022 forecast for an increase.”
“The deteriorating global economic backdrop, rising interest rates and the strength of the US dollar have revised our GDP growth forecast for 2023 to 3.9 percent from 5.7 percent previously.”
The upward revision came after the latest government economic indicators showed the UAE’s GDP expanded by 8.4 percent annually in the first quarter of 2022, with non-oil sectors expanding by 8.8 percent from a year earlier. The UAE economy has rebounded strongly on the back of tourism, a booming real estate sector, and rising oil prices.
The bank says a large part of the forecast for an increase in GDP for 2022 is due to higher expectations for oil and gas sector growth this year. The UAE’s crude oil production increased by 13 percent in the first eight months of this year, compared to the production of the entirety of 2021.
In addition, the UAE has announced that it will accelerate its plans to increase oil production capacity, with the aim of reaching a production capacity of 5 million barrels per day by the end of 2025 instead of the previous target date for 2030. This points to increased investment in oil and gas infrastructures, which will boost growth in the sector in the medium term, even if current production is curtailed by OPEC+ in the coming months.
The bank now expects hydrocarbon GDP to grow by 13 percent in 2022 (formerly 10 percent) but has lowered its forecast for 2023 hydrocarbon GDP to 5 percent from 10 percent previously.
The PMI and other data indicate strong growth in the UAE’s non-oil sectors through the third quarter of 2022. Indeed, the S&P Global Purchasing Managers’ Index rose to its highest level in more than two and a half years in August.
Retail companies also recorded double-digit growth in consumer spending in the first half of 2022, and hotels were in a position to increase their revenue per available room by almost 20 percent from 2019 levels while also increasing occupancy.
The real estate market has also recovered from pre-pandemic lows, with strong growth in the number and value of transactions in the first half of 2022. This is due in large part to foreign investment.
“Thus, we have revised our forecast for the GDP of the non-oil sector to 4.7 percent in 2022 from 4.1 percent, taking into account some of the expected slowdown in momentum in the fourth quarter of this year,” Haq said.
“Despite the slowdown in the global economy due to high inflation rates around the world and other headwinds as well as monetary tightening by central banks around the world, the UAE is in a strong position… The UAE is in an enviable position to manage a fiscal surplus – which we expect to remain the case in 2023 – with a strong balance sheet. This would allow the public sector to continue investing locally in order to achieve its long-term strategic goals.”
