UAE and Gulf economies to recover next year as challenges from the Covid-19 pandemic ease and non-oil sectors return to pre-pandemic levels
The Expo is also part of efforts to diversify the economy away from oil, as part of the government’s October pledge to achieve net zero emissions by 2050. – Photo file
The economies of the United Arab Emirates and the Gulf will experience a strong economic recovery next year as the challenges induced by the Covid-19 pandemic ease and the non-oil sectors return to their pre-pandemic levels, according to reports.
Analysts and research reports have high hopes for Expo 2020 to revive the region’s travel and tourism sectors that will support a rapid recovery in the non-oil sector and diversify GCC economies.
PwC Middle East in its latest Economy Watch said GCC economies are ripe for growth because of the vibrant oil and non-oil sectors. âA combination of factors are contributing to the recovery across the region. Non-oil growth is a key driver of this recovery; sectors such as financial services have emerged from the pandemic in a strong position, âthe PwC report said.
As for Saudi Arabia, its large domestic demand pool and the government’s commitment to giga projects are key to boosting economic recovery, he said.
âFor the United Arab Emirates, a critical marker for the recovery of their travel and tourism sector will be the number of visitors reached at Expo Dubai 2020, during the six-month event – which so far looks positive and will undoubtedly boost UAE travel and hospitality, âaccording to PwC.
UAE growth accelerates
FocusEconomics, in its monthly report, also said that the UAE economy is expected to recover next year with increased oil production, with the oil sector seen as a drag on overall growth this year.
Matthew Cunningham, economist at FocusEconomics, said the non-oil sector should provide further support, with private consumption supported by the strong vaccination campaign and the six-month Expo 2020 increasing the number of tourists.
âAs the fourth quarter approaches, Expo 2020, which kicked off in October, is likely to boost inbound visitor arrivals, helping the UAE’s sizable and hard-hit tourism industry. The Expo is also part of efforts to diversify the economy away from oil, as part of the government’s October commitment to achieve net zero emissions by 2050, âCunningham said.
“FocusEconomics panelists predict that the UAE’s economic growth will increase by 4.4% in 2022 and 3.3% in 2023, while non-oil GDP will increase by 3.6% and 2.8% respectively,” a he declared.
The IMF, in its latest forecast, expects 3% GDP growth in the UAE in 2022 and 2023, respectively. The World Bank is more optimistic and forecasts growth of 4.6% next year and 2.9% in 2023.
Diversification holds the key
Saad Maniar, a senior partner at an auditing and consulting firm Crowe, said oil and gas has been the most dominant industry in history. âThe UAE’s economic engine is propelled by its drive for diversification and investment in infrastructure, which has enabled the economy to reduce its dependence on oil and gas,â Maniar said.
He said that transportation, tourism, commerce, retailing and real estate are the top five drivers of economic growth, especially for Dubai.
âTourism is a major contributor to Dubai’s growth and is part of the Dubai government’s strategy to maintain the flow of foreign income into the Emirates. The contribution of the tourism sector which has declined during Covid-19 over the past two years has gained momentum with Expo 2020 and other mega-events like the Indian Premier League, the Cricket World Cup, Gitex, Gulfood and many others. This momentum is expected to continue as the global market recovers and is expected to experience exponential growth, âhe said.
He said financial services, although not one of the five key drivers, but cannot be compromised and in my opinion will play a major role as DIFC and ADGM continue to grow. position as world-class financial centers.
âThe two financial centers have invested heavily to promote ‘Innovation and fintech’ companies, which will contribute to significant economic growth in the years to come.
âAs the UAE celebrates the Year 50, we continue to see the strategy evolve with visionary leadership and, most importantly, their implementation, which has played a fundamental role as a catalyst for this nation’s success. “said Maniar.
Main growth drivers
Shailesh Dash, a Dubai-based financier and entrepreneur, said tourism, trade, finance, real estate and investment will be the main growth engines for the UAE economy in the years to come.
“Tourism is boosted by the infrastructure built in the UAE and the attractiveness of the country among the global population, while increased trade with the excellent network of modern supply chains will also benefit the economy,” did he declare.
He said the migration of the wealthy and skilled population to the UAE attracted by government policies as well as the excellent handling of the pandemic in the UAE has also benefited the economy.
âMany other associated sectors such as real estate and investment will also naturally increase the country’s GDP,â Dash said.
More oil for the benefit of the GCC
The FocusEconomics report further said regional GDP will grow sharply this year, with oil exporters poised to benefit from rising average crude prices and easing OPEC + cuts. âIn 2022, growth in the region is expected to accelerate as vaccine deployment and pent-up demand support national activity. In addition, oil production is expected to increase next year as Opec + further reduces production cuts, âaccording to the FocusEconomics report.
PwC Middle East said that the recovery in oil prices to their highest sustained level since 2014 and the gradual reduction in production cuts by Opec + are also contributing to a solid improvement in public finances that will benefit the economies of the region.
Richard Boxshall, Chief Middle East Economist at PwC Middle East, said economic diversification has been a central concern of GCC governments in recent years.
âWhile we are seeing signs of growth in the non-oil and oil sectors, the region looks poised for a rapid recovery. However, travel and tourism, a critical industry, is lagging behind in terms of the recovery, but the reopening of travel is expected to boost this and all eyes are on Expo 2020, which will be a milestone in the recovery of the market. travel industry, âBoxshall said. .
A flurry of IPO activity
Following the scarcity of IPOs on the region’s stock exchanges, 2021 saw a wave of major IPOs with Saudi Arabia and Abu Dhabi leading the pack, according to the PwC Middle East report.
âThe current change shows growing confidence in the region, due to high oil prices and the upturn in Covid-19, as well as high valuations of global equities as well as the need for government entities to raise funding. Increased investor confidence and appetite are a positive indicator of confidence in a continued economic recovery, âthe report says.
Stephen Anderson, clients and market leader in the Middle East, said signs of recovery for the remainder of 2021 remain strong, with key leading indicators showing growth.
As oil prices help rebalance the fiscal budgets of GCC governments, this will further support economic growth. The growing capital market activity in the region, particularly around IPOs, is a testament to investor confidence and the growth potential of businesses in the region, âsaid Anderson.