ICAEW: Expo 2020 Dubai Set To Boost Recovery For UAE's Non-Oil Economy

The latest Middle East Economic Insight report for the third quarter of 2021, from Oxford Economics, predicts a promising outlook for the UAE’s recovery with a forecast GDP growth of 1.7% this year and 6.5% in 2022. Government initiatives and the delayed Expo 2020 event are set to usher in a period of stronger growth in the non-oil economy.

According to the report, commissioned by ICAEW, non-oil GDP is predicted to grow by 3.8% this year and 4.1% next year. Following the UAE’s record GDP fall of 6.1% in 2020, the outlook for recovery in the rest of 2021 is promising, due to expansionary government policies. These include the Dubai 2040 plan and Abu Dhabi’s cultural investment drive, which are driving the non-oil rebound.

As COVID-19 cases decline in the UAE, restrictions have continued to ease across the country. Hotels are now operating at full capacity; while malls, cinemas and other entertainment venues have had their capacity limits lifted to 80%. Online learning at schools is also on a rapid decline, as schools re-opened for the new year with increased in-person attendance. August Purchasing Managers’ Index (PMI) data showed a softening in growth momentum, consistent with global trends, although output and employment remained on an upward trend, as businesses hired more employees to keep up with growth in business activity and demand.

Expo 2020 Dubai, which begins on 1st October, is set to be an important driver for the non-oil economy. The global event is expected to lift travel and tourism, which accounts for up to 16% of GDP in the UAE, both directly and indirectly through its impact on the supply chain and the spending it supports. Hotel occupancy rates have also recovered, supported by a rise in ‘staycations’ and visitor numbers rising by nearly 40% in 2021 - after dropping by two-thirds in 2020. However, they are unlikely to return to pre-pandemic levels until 2023, according to ICAEW.

Concerns about the fast-spreading Delta variant present a risk to the number of visitors, especially in the early months of the expo. While the UAE does not publish detailed data on COVID cases by variant, cases of the Delta variant have been reported. Additionally, a high global case count may discourage travellers, and restrictions in COVID-zero countries in the Asia-Pacific region could still weigh on the economic and employment optimism expected from Expo 2020 in the fourth quarter of 2021.

Michael Armstrong, ICAEW Regional Director for the Middle East, Africa and South Asia, said: “The outlook for most industry sectors in the UAE looks positive this quarter, especially with the start of the six-month Expo 2020 trade fair, which has already encouraged economic activity this year and potentially laid a foundation for even more growth in the coming months. The removal of the UAE from the travel ban lists of important origin markets, like the UK and Saudi Arabia, is timely, while the acceptance of vaccinated travellers from much of Europe is positive for the success of the global event. However, keeping COVID case levels low will be necessary to ensure sustained economic growth.”

For the oil sector, the report states OPEC+-mandated production limits will make a significant contribution to GDP growth in 2022, expanding oil production by almost 13%. The UAE’s production baseline will be bumped up to over 3.5m barrels per day (b/d) from May 2022, from just under 3.2m b/d currently, offering the potential for a faster rise in oil output in the second half of 2022. The oil sector should remain an important driver of growth over the next decade as Abu Dhabi National Oil Company (ADNOC) aims to raise output to 5m b/d by 2030.

UAE authorities have also implemented several initiatives to improve the country’s standing in attracting and retaining foreign capital and talent, in an attempt to double the size of the economy in the next 10 years. Among these initiatives are the Dubai 2040 plan, which sees the city's population growing by over 75% in the next 20 years; the ‘Operation Dh300bn’ which will see the industrial sector’s contribution to GDP rise from 1.3% to 2.0% over the next 10 years; and Abu Dhabi’s cultural investment drive to invest Dh22 billion ($6bn) over the next five years in its cultural and creative industries, in a bid to create new jobs and attract talent.

Scott Livermore, ICAEW Economic Advisor and Chief Economist at Oxford Economics, said: “The UAE is firmly committed to an open and inclusive growth agenda and has taken steps to develop sectors and industries that foster innovation, accelerating them into the post-COVID era. These government initiatives, alongside reforms around visas and citizenship and 100% foreign ownership of onshore companies, put the UAE on a good footing to accelerate diversification plans through investment in research and development of high value-added and digital sectors, as well as the green economy.

“The improved outlook for oil prices combined with the prospect of higher oil output should also allow the UAE government to build up financial resources. With the budget balance in surplus, it will be able to aggressively pursue its growth and diversification agenda.”

Headline inflation is also rising alongside the domestic economic recovery, although it remains negative. The Economic Insight report forecasts average inflation at -0.5% in 2021 and 1.1% in 2020, the lowest in the GCC region.