Driven by ongoing infrastructure investment in the non-oil economy and increasing output in the oil sector, UAE’s headline growth is set to accelerate from 0.8 per cent in 2017 to around 2.5 per cent in 2018 and 3.3 per cent in 2019, a report said.
With oil production expected to increase from mid-2018, real oil GDP growth will recover from 2017’s decline of 3.0 per cent and rise to 0.6 per cent and 1.5 per cent in 2018 and 2019, respectively, said the National Bank of Kuwait (NBK) in its latest Economic Update.
According to the latest official data, UAE crude production averaged 2.87 million barrels per day (mb/d) in May, having experienced its first increase in March (+1.6 per cent m/m) in more than a year.
The UAE continues to invest in expanding its oil production capacity in anticipation of higher demand. Adnoc, the state-owned oil firm, recently announced plans to double its refining capacity and triple its petrochemical output by 2025. To support its plan of attracting strategic investors, it intends to privatize parts of its businesses and offer six competitive oil and gas concessions for the first time. Bids are due by October, with the winner granted exploration and development rights.
The non-oil economy, meanwhile, is forecast to maintain its healthy growth momentum and expand by 3.3 per cent this year from 2.5 per cent in 2017, supported by further gains in the tourism and construction sectors, especially with the Expo 2020 event in Dubai drawing nearer.2019 should see the non-oil economy grow by a further 4.0 per cent.
Moreover, in a further effort to support the non-oil economy, the federal authorities and the governments of Dubai and Abu Dhabi have unveiled a series of growth-enhancing measures in recent months. At the federal level, the UAE has raised the share of local businesses outside of designated “free zone” areas that foreigners are permitted to own from 49 per cent to 100 per cent.
The move is part of a wider plan that includes residency visas of up to 10 years to investors and highly skilled expats, such as specialists in the scientific, technical, medical and research fields. The new ownership and residency rules are expected to stimulate FDI inflows and help boost the domestic real estate market.
Abu Dhabi, meanwhile, recently approved a three-year Dh50 billion ($13.6 billion) economic stimulus program. The authorities intend to make it easier to do business in the emirate, spur employment growth and increase tourism activity. Government spending has been key to the emirate notching up a third consecutive quarter of accelerating non-oil growth—3.0 per cent in 4Q17.Headline growth, however, managed only 1.1 per cent y/y in the same quarter, given the dominance of the oil sector (which is subject to oil production cuts) in Abu Dhabi’s economy.
Dubai has also announced its own plans to improve the business climate and stimulate foreign investment. As a start, the authorities plan to waive some fees on aviation, real estate and school and reduce those on business.
Furthermore, Dubai’s Department of Economic Development (DED) launched a package that will help businesses clear fines and renew licenses in monthly instalments. Businesses will also be able to freeze their trade licenses for a year and also seek favourable settlements with the DED for any commercial violations. In May, both Dubai and Abu Dhabi agreed to exempt businesses from any administrative fines until the end of the year, all in a bid to bolster foreign investment and business activity.
Meanwhile, economic growth in Dubai continues to fare better, thanks to its more diversified economy. Output expanded by 2.5 per cent y/y in 4Q17. Dubai’s important hospitality and construction sectors continue to perform well, and the measures unveiled above will undoubtedly act as a further boost to these respective sectors.
The number of passengers passing through Dubai International Airport came in at a record high of 23 million in 1Q18, just above the average 22 million recorded in 2017.
Construction activity continues to be supported by preparations for the Expo 2020 event. Over $8 billion has been allocated to Expo-related projects, including for buildings, metro expansions, roads and bridges; Dubai has reportedly already invested up to half of that total amount so far.
A number of downside risks persist, however. If downward pressures on oil prices re-emerge, this could lead the government to adopt stricter fiscal consolidative measures again, quelling economic growth. Also, with interest rates likely to rise further, this could eventually lead to tighter liquidity and a slowdown in investment spending. A potential escalation of the Qatar crisis may also affect growth.
The impact of more stringent loan-to-value regulations (introduced back in 2013) on Dubai’s residential property market continues to be compounded by the effects of increased supply and higher interest rates.
According to Asteco, the prices of both apartments and villas fell at a faster rate (-9 per cent y/y) in 1Q18 than in the previous quarter; prices are expected to continue to fall this year due to still higher supply and further shifts in the composition of demand, away from luxury housing to more affordable housing units.