UAE’s non-oil sector is predicted to see major expansion in 2023, driven by the policy push by the government in key sectors, an anticipated more than 20 percent spike in travel and tourism sector growth and continued bull run in the real estate sector, a leading economist said.
This will lead to a surge in job creation and employment as also a rise in population in the coming year.
A drastic drop expected in inflation to 2.1 percent in 2023 from the estimated average 5.6 percent inflation this year will also provide a strong tail wind to economic growth in the UAE in 2023.
“The non-oil economy has been recovering strongly from Covid and we expect to see continued growth across the non-oil sector [in 2023],” Scott Livermore, chief economist and managing director, Oxford Economics Middle East, told Arabian Business.
Besides a more than 20 percent jump in the travel and tourism sector growth, the strong growth momentum in the property market, particularly in Dubai, will continue into 2023, with a resurgence in off-plan transactions suggesting a rise in construction activity in the pipeline, the Oxford Economics chief said.
“However, we would describe growth over the next few years as being broad-based – and that includes the oil sector – as the UAE seeks to increase production levels. The UAE is pushing for growth across the economy, not just in the non-oil sector,” Livermore said.
The latest Oxford Economics-compiled Economic Insight report for the Middle East, released on Monday by ICAEW (Institute of Chartered Accountants in England and Wales) projected the UAE’s overall economic growth to slow down to 2.7 percent in 2023 but the non-oil sector to remain resilient, holding up against high inflation and interest rates.
The IMF has projected UAE’s overall GDP growth to reach above 6 percent in 2022, improving from 3.8 percent in 2021.
Livermore, who is also the economic advisor to ICAEW, said the main reasons for the slowdown in GDP growth in 2023 is the expected OPEC+ policy and the outlook for oil production.
“Having expanded by around 15 percent in 2022, we expect oil production in 2023 as a whole to be only slightly up on the average of 2022.
“There are also headwinds from inflation, tighter monetary policy, and recessions in the US and parts of Europe that will weigh on the non-oil economy, but it should be fairly robust to these,” he said.
The Oxford Economics chief, however, said there could be upside risks to the global outlook, which is the main drag on UAE growth.
“For example, the supply chain issues could normalise faster than expected aided by an early and successful pivot by the Chinese authorities away from their zero Covid policy,” Livermore said, adding that with commodity market disruption more limited than anticipated, commodity prices fall and earlier rises in producer prices partially unwind.
“These factors drive down inflation and allow an early unwind of monetary policy tightening,” he said.
Also, domestically in the UAE, momentum currently seen in the economy could prove more resilient than forecast.
“Both these scenarios could see the outturn for GDP growth in the UAE stronger than currently forecast but a significant slowdown on the rate seen in 2022 will still be seen,” Livermore said.
He said the positive growth outlook should be job creating.
“We are likely to see employment and population rise [in 2023],” he said.
On inflation, Livermore said there are signs that inflation has peaked in the UAE.
Recent data for Dubai show inflation slowing to 4.6 percent year-on-year in October, down from the 7.1 percent peak in July.
Lower food and beverage prices have been the key driver of inflation easing along with transportation prices, tracking the decline in commodity prices.
“We expect these trends to continue for the UAE. But inflation is unlikely to fall back to pre-Covid levels when prices are falling, as growth will support price pressures, particularly in the real estate sector,” Livermore said.
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