GDP growth in 2017 weighed down by lower oil production

27/09/2017 15:21 AST

Economic growth in the UAE is expected to moderate further in 2017, before seeing a pick-up in 2018 as the non-oil sector gathers momentum and offsets continued weaknesses in the oil sector. We see GDP growth moderating from 3.0% in 2016 to 2.2% in 2017, and now expect growth in 2018 of 2.6%. The latter is below our previous projection with the extension in oil production cuts continuing to weigh on growth.

In May, OPEC and a group of non-OPEC nations agreed to extend a six-month supply cut that was scheduled to end in June of 2017, to at least the end of the first quarter of 2018, in an effort to support oil prices. The UAE’s level of compliance has lagged behind its GCC peers. But state-owned oil company Adnoc, the 12th largest oil producer globally, recently announced that it will cut crude shipments by 10% starting in October. In this setting, real growth in the oil sector is poised to be negative in 2017, before improving slightly in 2018.

In contrast, non-oil activity is slated to recover, albeit gradually, in 2017 and over the following year, as the tourism and construction sectors (key contributors to non-oil GDP growth) gather further ground, especially in the run-up to the Expo 2020 event in Dubai. The non-oil economy is also expected to be supported by a potential stabilization and eventual recovery in sales prices in the residential real estate sector. Real non-oil growth is set to rise from an estimated 2.7% in 2016, to 3.3% and 3.7% in 2017 and 2018, respectively.

The latest data on the UAE’s Markit Purchasing Managers’ Index (PMI), a good gauge of non-oil sector growth, also point to a steady recovery in non-oil sector activity. The headline PMI rose to an over two-year high of 57.3 in August mainly as new orders and output remained robust, thanks to an ongoing improvement in domestic conditions. This has more than offset the ongoing softness in new export orders.

Despite generally positive economic performance, there are a number of downside risks to the outlook. A prolonged low oil price environment has ramifications for non-oil growth, and a renewed dip in oil prices could see the government intensify its fiscal consolidation program. Furthermore, higher interest rates in the US – further hikes are expected through 2018 – will filter through to domestic rates, potentially tightening liquidity conditions and affecting investment spending.

Additional downside risks may arise if the Qatar crisis escalates or remains unresolved.

Although Qatar is not a major contributor to the UAE’s trade and tourism sectors, the diplomatic tensions impact investor sentiment. Another, but less likely risk, is a potential disruption to natural gas supply through the Dolphin pipeline, the main energy link between the UAE and Qatar. The pipeline supplies about a third of the UAE’s natural gas, but with Abu Dhabi’s government holding a 51% stake in the pipeline and foreign entities holding the remainder, the likelihood of the supply being disrupted is fairly low.

Overall non-oil economy is being supported by steady gains in Dubai

The ongoing steady recovery in the UAE’s non-oil economy is largely being driven by improvements in Dubai’s hospitality and construction sectors. The number of passengers passing through Dubai International Airport stood near a record high in 2Q17, at 21 million. (Chart 4.) According to Ernst & Young’s latest MENA Hotel Benchmark Survey, even as average daily room rates at hotels in Dubai have declined (but remain the highest in the MENA region), demand for hotel rooms continues to hold. Occupancy rates among hotels in Dubai averaged 83% in the first half of 2017 (the highest in the MENA region).


Press Release

Ticker Price Volume
SISCO 13.44 432,595
EXTRA 54.30 397,415
KEC 10.44 169,610
SECO 18.40 732,542
SAMBA 29.80 1,824,433
JADCO 23.24 26,909
FARM 18.72 38,399
ICD gains from robust capital position and strong liquidity

16/08/2018

The Islamic Corporation for the Development of the Private Sector (ICD, Aa3 stable) benefits from a robust capital position and strong liquidity, although its weak asset quality remains a challenge,

Saudi Gazette

Governor of Saudi Customs inspects Jadidat Arrar Port to ensure smooth processes

16/08/2018

Governor of the Saudi Customs General Authority Ahmad bin Abdulaziz Al-Hakbani visited Jadidat Arrar Customs Port on Sunday (Aug. 4, 2018) to oversee preparations taking place for welcoming Haj pilgr

Saudi Gazette

UAE tops Arab world in competitiveness

16/08/2018

The UAE, which leads the Arab region in terms of competitiveness, and is home to many tech firms, needs to increase efforts to expand the use of latest digital technologies to further enhance its dom

The National

Four-day Eid holidays for banks in the UAE

16/08/2018

Banks operating in the UAE will observe a four-day holiday on the occasion of Eid Al Adha. The Central Bank of UAE (CBUAE) has notified banks that the holidays will start on Monday, August 20, and th

Gulf News

Qatar promises $15b investment in Turkey: presidency

16/08/2018

Qatar pledged $15 billion (Dh55.09 billion) of investment in Turkey that will be channeled into Turkish financial markets and banks, a government source told Reuters yesterday. The investment package

Gulf News