Non-oil growth drives UAE GDP up 1.5pc

23/03/2018 07:06 AST

The UAE’s economy expanded by 1.5 per cent in 2017, driven by a 2.9 per cent growth in the non-oil sector, according to the UAE Central Bank annual report released yesterday (March 21).

The non-hydrocarbon sector’s resiliency was supported by employment expansion, higher government spending and improved growth in the main UAE’s trading partners, said a Wam news agency report.

However, the real oil GDP declined by 1.5 per cent on account of the Opec oil production cut agreement to which the UAE has committed.

Annual inflation reached 1.8 per cent in 2017, the same rate as in 2016. Tobacco and beverages prices jumped by 18.3 per cent on account of the excise tax implemented in October and transportation costs rose 5.4%. Employment expanded by 2.6% y-o-y in the first nine months of 2017. Fiscal expansion continued in the first nine months of 2017, increasing government spending by 23% y-o-y.

After a dramatic decline in oil prices in 2014 and the subsequent declining trend where the Brent price hit less than $30 for the first time since February 2004, oil prices started their recovery in 2017. Oil prices declined by 47% in 2015, followed by a trough of 17% in 2016 which weighed heavily on the UAE’s hydrocarbon revenues and resulted in an adverse shock to the UAE’s terms of trade. Effective January 2107, following an Opec agreement that stipulates a coordinated oil production cuts among its members and other non-Opec countries, the Brent price climbed by 24% in 2017 to end-up the year around $70 per barrel.

The oil production cut was clearly reflected in the real oil GDP growth in 2017. According to the estimation of the central bank, real oil GDP shrank by 1.5% in 2017 against a previous expansion of 3.8% in 2016. The improvement of oil prices has supported the recovery of the UAE’s economy, as evident by an improved sentiment that was transmitted to the improved growth of non-oil activity, the report said.

In addition, the diversification of the UAE’s economy has been a strong pillar to weather the adverse implications of continued fluctuations of the oil price. Indeed, the non-oil sector showed remarkable resiliency and it has sustained a stable growth pattern since the decline of the oil price in 2014, the report added.

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