ICAEW: UAE Economy To Expand Further In 2020
According to ICAEW's latest Economic Update, the outlook for UAE’s economy remains promising, with economic growth expected to accelerate from an estimated 1.9% in 2019 to around 2.2% in 2020. The accountancy and finance body says that Expo 2020 Dubai, the Middle East's first World Expo event, is expected to boost UAE's non-oil GDP growth to about 2.8%.
Economic Update: Middle East Q4 2019, produced in partnership by ICAEW and Oxford Economics, says Expo 2020 Dubai, which is anticipated to attract 25m visitors (14m from overseas), is forecast to contribute up to 1.5% of the UAE’s overall GDP in 2020.
The relevant authorities have stepped in to support non-oil activities in the country. Both Abu Dhabi and Dubai are implementing fiscal packages, while the recent interest rate cut by the US Federal Reserve, which the UAE Central Bank followed given the dollar peg, should support private sector credit growth. However, these measures are yet to have a significant impact on the UAE's non-oil activity.
According to ICAEW, the expansion in non-oil activity is slowly beginning to translate into stronger job creation, although at a modest rate. Total employment in the private sector increased by 1% year on year in Q2 2019, up from just 0.1% year on year in Q1. While total employment increased in other sectors; which include tourism and real estate, it declined in the remaining sectors, including construction, services and manufacturing.
Nonetheless, despite some pick-up in real estate transactions and employment, residential home sales prices continue to slide in both Abu Dhabi and Dubai. The ICAEW report says market conditions are unlikely to see much of a rebound in the remainder of 2019 and the first half of 2020 (H1), reflecting expected strong supply growth and continued subdued demand.
Although the legacy of Expo 2020 is hard to estimate, the investment climate remains positive with infrastructure upgrades. In 2019, the UAE has attracted $12.7bn in foreign direct investment in H1, an increase of 135% year on year – while tourist arrivals rose 3% in the same period to reach 8.4m.
Unlike other countries in the region, the UAE has produced more oil this year compared to last year – pumping at a steady pace of around 3.1m barrels per day (bpd), up from 3m bpd in 2018. Overall, this implies a positive contribution to growth from the oil sector, which has expanded by around 2.5% year on year in 2019, unlike a drag elsewhere in the region.
2020 a turning point for Middle east economies
According to ICAEW, oil remains the dominant driver of growth in the GCC. Consequently, low-trending prices and ongoing output caps pose a challenge for GCC countries that are heavily reliant on hydrocarbon receipts to balance their budgets.
The accountancy and finance body says the ongoing weakness of the global economy will keep a lid on oil prices, maintaining a key headwind for GCC commodity-dependent economies. Following the attack in September 2019 on Saudi Arabia’s oil facilities, that halted almost 5% of global oil supply, oil prices jumped by 15% in one day – the biggest climb in 30 years. Once oil production was restored, oil prices swiftly fell back again, to around $60 per barrel (pb), underpinning the ICAEW and Oxford Economics 2019 and 2020 oil price forecasts of $63.8pb and $64.6pb respectively.
In 2020, non-oil growth is expected to recover to around 2.8% year on year, from an estimated 2.1% this year, supported by high government spending. In Saudi Arabia, 2019 is shaping up to be a year of underspending, according to the 2020 budget. However, an increased stimulus for households and industry is providing a boost to non-oil sectors as well as private sector consumption – which has already risen by 4.4% year on year in real terms in the first half of the year (H1).
Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA), said: “2019 has been a challenging year for Middle Eastern economies, due to geopolitical tensions, OPEC-led oil output cuts and ongoing weakness in the non-oil sector.
However, despite lower oil prices this year, we are pleased to see signs of pick-up in the non-oil economy, supported by government spending.
“We believe there is plenty of room for improvement. To achieve a more diverse and sustainable economy, regional governments must remain proactive in implementing the necessary fiscal reforms aimed at achieving economic diversification, and continue to support their economies with pro-growth initiatives.”
By contrast, monetary policy is becoming more supportive. GCC banks have followed moves by the US Federal Reserve, which should benefit private sector activity. Kuwait’s central bank joined in the easing in October, having skipped the previous two cuts as the basket of currencies that the Kuwaiti dinar is calculated against allows some flexibility to deviate from the path carved out by the Federal Reserve.
