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The Reasons Behind the Steady Growth of UAE’S Economy

After almost two years of slower growth, the UAE economy is on track for a resounding rebound in the fourth quarter of 2019 on the back of a spate of stimulus measures and reforms unveiled by the federal and local governments. 


Analysts are upbeat on the overall growth outlook and predict that a remarkable increase in investment flows, private consumption and a vibrant pick up in business activities in the run up to the World Expo 2020 would drive UAE’s real GDP growth over the next five years.

The country’s Central Bank has projected that the GDP will expand 3.5 per cent in 2019 compared to 2.8 per cent in 2018, spurred by a Dh50 billion stimulus package announced in 2018 as well as a host of reform measures introduced to enhance the ease of doing business across the country. The latest Central Bank quarterly report said that while non-oil GDP growth will grow at 3.4 per cent in 2019 against 2.6 per cent last year, oil GDP will expand at 3.7 per cent this year versus three per cent.

The apex bank has projected that non-oil GDP economic growth in the first quarter of 2019 will reach 3.1 per cent but will grow faster later. The overall GDP growth for the fourth quarter of 2018 is estimated at 4.4 per cent, driven by non-oil sector real growth, as well as accelerating oil production since October.

The upbeat projections are in line with the International Monetary Fund’s projected growth of 3.7 per cent in real GDP for 2019 versus 2.9 per cent last year. According to IMF estimates, the outlook for the UAE is brighter than for the rest of the GCC. Economic activity is expected to strengthen steadily in the coming years with firming oil prices and other global indicators, and an easing pace of fiscal consolidation.

The IMF foresees GDP growing from $432.6 billion in 2018 to $455.5 billion this year and $475 billion in 2020. It predicts a shortfall of Dh26.1 billion for 2018 with revenues at Dh448.5 billion and expenditures at $474.6 billion. It estimates a Dh30.5 billion surplus for 2019 with revenues at Dh528.8 billion and expenditures at Dh498.3 billion. For 2020, it predicts revenues at Dh515.1 billion and expenditures at Dh510.7 billion. For the UAE, the IMF forecasts an average crude export price of $72.3 per barrel in 2019 compared to $71.9 last year.

“The contribution from the private sector is projected to rise owing to, among other things, the recently-announced reforms, continued recovery in private sector credit growth, and stronger consumption growth,” Hazem Beblawi, the IMF’s executive director for the UAE, said in an analysis.

Following the slowdown in 2015-16 due to a decline in crude prices, the UAE economy is recovering and growth momentum is expected to strengthen in the next few years with increased investment and private sector credit, improved prospects in trading partners, and a boost to tourism from Expo 2020, said the IMF report.

As private sector activity picks up and stimulus measures are phased out, fiscal consolidation is expected to resume, to ensure sufficient saving of oil wealth for future generations. The overall fiscal balance is projected to turn to a surplus next year on higher oil prices and remain positive over the medium term, the IMF said.

“The momentum behind the UAE’s GDP growth over the next five years will likely be led by the country’s transport and communication sector which is set to record GDP growth of 7.9 per cent, followed by construction [4.2 per cent], and real estate and business services [3.8 per cent],” a Dubai Chamber study said.

Minister of Economy Sultan bin Saeed Al Mansouri predicted that the landmark foreign investment law is expected to boost foreign direct investment (FDI) flows by up to 20 per cent in 2019, from an average growth rate of eight per cent. He said the fluctuation in oil prices did have an effect on the economy but [only] to a certain extent and, because the UAE is a diversified economy and oil contributes roughly about 30 per cent of GDP, the effect of oil was minimum.

The implementation of long-term visas of up to 10 years and the new low-cost employee insurance policies aimed at retaining talent and attract investors will also have a positive impact on economic growth. Other key growth drivers include an expansionary fiscal policy at the federal and emirate levels, continued investment ahead of Expo 2020, improving tourism, government stimulus plans, reforms and rising FDI inflows.

A part of efforts to stimulate business growth and economic development, Dubai and Abu Dhabi have exempted companies from administrative fines. An initiative by Dubai to reduce aviation and municipality fees will ensure lower corporate and government charges and contribute to creating jobs while enhancing ease of doing business. Dubai is scraping 19 fees related to the aviation industry as it seeks to attract more than Dh1 billion of foreign investments into the sector.

The federal and local governments have already started initiating a string of measures to underpin the growth prospects in 2019. The government of Abu Dhabi announced Dh50 billion economic stimulus package, as well as 10 economic initiatives to ease the cost of doing business and help boost the non-oil GDP over the medium term.

This strengthens the Dubai government’s planned investment of $6 billion for Expo 2020 in 2018-20, mainly for airport and Metro expansions and site developments.
The UAE will invest Dh600 billion until 2050 to meet the growing energy demand and ensure the sustainable growth of economy, said the Dubai Electricity and Water Authority (Dewa) in a new report.

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