The real GDP of the UAE is forecast to expand at a slower pace of 3 percent this year, as against the scorching 7.6 percent growth rate in 2022, amid the country’s economy facing a slew of headwinds on the macro-economic front, a report by a global think tank said.
A decline in oil output resulting from OPEC-agreed production cuts and a slowdown in the non-oil sector due to higher interest rates and subdued external demand are cited as the key obstacles facing the UAE’s economic growth prospects in 2023, the report by GlobalData said.
The global data and analytics company, however, categorised the UAE as a very low-risk nation and ranked 10th out of the 153 nations in the GlobalData Country Risk Index (GCRI Q4 2022).
The UAE’s country’s risk score is lower in the parameters of political environment, macroeconomic, social, and environmental risk when compared to the average of Middle East and North African nations.
Need to persist with economy diversifying efforts
The oil and gas industry, estimated to account for around 30 percent of the country’s GDP and 13 percent of total exports, plays a crucial role in the UAE’s economy, according to the report.
The decline in oil and gas prices since the beginning of 2023, expected to persist throughout the year, will have a direct impact on the UAE’s economic growth prospects for the current year, the report titled “Macroeconomic Outlook Report: UAE”, said.
The report said the robust 7.6 percent spike in UAE’s GDP in 2022 – the highest since 2007 – was primarily fuelled by the surge in oil and gas prices last year.
GlobalData said according to its analysis based on information from the OPEC database, the UAE accounted for 7.2 percent of the oil reserves and 4 percent of the natural gas reserves in the world in 2021.
“To make the economy less vulnerable to external shocks, it remains crucial for the [UAE] government to persist in its endeavour to diversify the economy,” Indrajit Banerjee, economic research analyst at GlobalData, said.
“Abu Dhabi’s plan to invest $2.7 billion to double the size of the manufacturing sector by 2031, and the adoption UAE Circular Economy Policy 2031 that focuses on manufacturing, food, green infrastructure, and sustainable transport, reflects the government’s urge to transform to a more diversified economic base,” Banerjee added.
Sharp decline in non-oil sectoral growth rates predicted
The report predicted a sharp decline in growth rates in the country’s major non-oil sectors such as mining, financial intermediation, manufacturing and real estate in 2023, compared to last year.
“Mining, manufacturing, and utilities activities contributed 31.2 percent to the gross value added (GVA) in 2022, followed by financial intermediation, real estate, and business activities (22 percent), and the wholesale, retail, and hotels sector (15 percent).
“In nominal terms, these three sectors are forecast to grow by 2.9 percent, 3.7 percent and 2.5 percent respectively in 2023, as compared to 9.6 percent, 12.4 percent, and 8.4 percent in 2022,” GlobalData said.
On the external side, the exports growth is projected to slow down from 4 percent in 2022 to 2.6 percent this year.
On the domestic side, real household consumption expenditure is projected to grow at a slower pace at 4 percent in 2023, compared to 8.4 percent last year.
UAE taking major initiatives to boost non-oil sectors
The UAE has been making major policy and fiscal initiatives to diversify its economy in recent years.
For instance, it has announced several development projects with an investment of $23 billion in July 2022 to significantly boost construction and allied activities and create job opportunities.
These include the railway network project under Etihad Rail’s supervision of AED40 billion ($11 billion) by 2024, the construction of Dubai urban tech district by 2024, the expansion of the capacity of the Rashid solar park by 2025.
These projects are expected to drive the construction activities, which GlobalData forecast to rise by an average of 2 percent over 2023-25.
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