UAE’s GDP seen to grow over 4% a year until 2020

31/07/2016 05:15 AST

Project activity in the UAE is forecast to recover in 2017 after a difficult 2016 on the back of a strong recovery in economic growth, according to a new report from Middle East business intelligence service MEED.

MEED’s annual UAE Outlook Report for 2016 said that a recovery in oil prices combined with growing public and private sector activity boosted by Dubai’s preparations for the Expo 2020 will see real GDP growth rise to between 4-5 percent a year from 2017- 2020, compared with about 3.1 percent growth in 2016.

While acknowledging that many uncertainties remain that could derail an anticipated recovery in oil prices, the report says that a recovery in oil prices coupled with a modest increase in UAE oil production in 2017 will be supported by a recovery in non-oil activity connected with intensifying investment ahead of Expo 2020, and growing trade with Iran following the lifting of nuclear-related international sanctions.

The recovery is expected to support an increase in major project spending in the emirates after a year of flat growth in 2016 stunted by cutbacks in government spending and a review of oil & gas and infrastructure projects in Abu Dhabi.

The report says that about $155 billion worth of major projects were under execution in the UAE at the mid-point of 2016 and it identifies a project pipeline of about $629 billion worth of major projects that are planned in the UAE but not underway as of mid-2016.

About $22.6 billion worth of project contracts have been awarded in the UAE in the first half of 2016, largely driven by real estate, transport and power projects in Dubai, which account for about $16 billion worth of awards.

MEED forecasts that about $37 billion of awards will be made in the UAE in 2016, a similar level to 2015.

From 2006-2015, the UAE awarded an estimated total of $507 billion worth of projects, representing about 35 percent of the total value of contract awards in the GCC in that period.

The largest sectors for future projects are construction, followed by transport. In addition to Abu Dhabi’s metro and light rail plans, there is the expansion of Al-Maktoum International airport and further phases of Etihad Rail’s federal railway to execute.

The UAE, one of the world’s largest exporters of oil, is solvent and creditworthy with at least $500 billion-worth of public and private savings.

Its economy is increasingly diversified and supports large and experienced corporations active in regional and global markets. The banking system is solvent, liquid and well-managed.

However, the report highlights the unprecedented fiscal challenges facing the UAE as a result of the sharp and sustained fall in the oil price since the summer of 2014.

The UAE economy, it says, will contract significantly in current terms in line with the oil price in 2016. As a result of lower oil export revenues, the consolidated UAE government will record a budget deficit and the UAE’s historically substantial current account surplus will be eliminated.

These changes are raising profound questions about the way the UAE’s economy is governed and encouraging new approaches to economic and financial management.

This includes: increasing the efficiency and effectiveness of the governments of the federation and of individual emirates; acting to end or reduce energy and other subsidies; and preparing for the introduction of VAT and other forms of taxation for the first time to increase public sector revenue.

Risks remain

The main risk associated with the forecast made in this report is a failure of the projected oil price increases to materialize. This will intensify the challenges facing the government of the federation and individual emirates, but the UAE has the resources to deal with the financing requirements the low price scenario presents.

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Saudi Gazette