UAE GDP to recover in 2018 on higher investments, global trade flows, says report

The UAE economy will accelerate at a rate of 3.3 per cent in 2018, thanks to an increase in government investments, a rebound in world trade flows and an uptick in global tourism, according to a new report.

The forecast by consultancy Oxford Economics, in collaboration with accountancy and finance body ICAEW, is broadly in line with projections made earlier this month by  the IMF, which is predicting 3.4 per cent growth for next year.

Oxford Economics and ICAEW forecast that the UAE's growth will slow this year to 1.7 per cent, a more bullish estimate than the IMF's 1.3 per cent estimation. The country's economy grew 3 per cent last year, according to the Central Bank.

“As a relatively-diversified economy by GCC standards (with hydrocarbons accounting for just 22 per cent of total exports in 2015), and a key global trading hub, the UAE is benefiting more from the rebound in world trade flows than other GCC economies,” the report said. “While we expect consumer spending to come under pressure in 2018, prospects for investment look increasingly positive.”

The UAE forecast beats projections for the Arabian Gulf region as a whole, which is expected to register economic growth of just 1 per cent this year and  2.7 per cent in 2018, according to the ICAEW.

The World Bank in turn has forecast that growth in the Gulf region will reach 1.3 per cent this year, the weakest since 2009, and rebound to 2.3 per cent next year and 2.6 per cent in 2019 on the back of higher non-oil growth, easing of fiscal austerity measures and ongoing reforms.

Although there are no official economic growth projections for the UAE for this year and 2018, the central bank said in its first quarter economic review that growth in non-oil GDP will rebound this year to 3.1 per cent and to 3.7 per cent in 2018, thanks to the easing of fiscal consolidation and economic growth among the UAE’s trading partners.

Government investments, especially for the Expo 2020, will also help nudge growth higher.

“Most substantially, several key infrastructure projects are forging ahead, partly in support of Expo 2020 (the first to be held in the Middle East region), but also more widely driven by the ongoing expansion of trade and transport links,” said the ICAEW. “Construction activity is also being supported by evidence that the property market decline is bottoming out.”

Both the IMF and Bank of America Merrill Lynch concur that medium term non-oil growth will reach 3 per cent or higher, thanks to investments in the lead up to Expo 2020.

The ICAEW report, however, cautioned that further oil price declines or escalation of tensions between Qatar and the Gulf would pose a downside risk to growth.