UAE’s economic recovery will continue in 2022 despite headwinds from Covid-19

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The UAE experienced a solid economic end until 2021, with Expo 2020 Dubai and the rebound in tourism boosting domestic demand.

While the tourism sector will likely take some time to fully recover from the Covid-19 pandemic, the latest data from the Department of Economics and Tourism shows that the number of international visitors to Dubai in November has rebounded by nearly 76% of 2019 levels and the December data is expected to show further improvement.

Hotel occupancy and revenue per available room, a key performance metric calculated by multiplying a hotel’s average daily rate by its occupancy rate, also improved significantly from 2020 despite the challenges posed by new variants of the coronavirus.

Data from a recent survey for the United Arab Emirates supports this view: even with a slight decline in the purchasing managers index (PMI) in December, the average PMI for the fourth quarter of 2021 was the most high since the second quarter of 2019.

This indicates that the UAE economy likely exhibited faster growth in gross domestic product in the last quarter of last year. Emirates NBD estimates that non-oil GDP grew 3.5% in 2021 after a sharp Covid-related contraction in 2020.

While the near-term outlook is clouded by the rising number of coronavirus cases, the UAE’s high vaccination rate and relatively young population puts them in a good position to withstand the current wave of infections without having to re-impose the strict measures implemented in the second quarter. from 2020.

Although growth may slow down somewhat in early 2022, the non-oil sectors are expected to grow by around 4% this year.

Oil prices rebounded sharply in 2021, rising more than 60% on average from 2020, bolstering sentiment and allowing GCC governments to significantly reduce their budget deficits for 2020.

The UAE likely recorded a budget surplus in 2021 and with oil prices set to average $ 70 per barrel again in 2022, there is fiscal space to increase public sector investment in the sectors of the United Arab Emirates. strategic growth.

With Opec + expected to continue increasing oil production over the next few months, the hydrocarbon sector is expected to contribute positively to UAE GDP growth in 2022 for the first time in three years. Emirates NBD expects aggregate GDP growth to accelerate to 4.6% this year, from an estimated 1.9% in 2021.

While the outlook for 2022 is generally constructive, uncertainty persists due to the evolution of the coronavirus pandemic.

The recently identified Omicron variant appears to be much more easily transmitted and has led to an increase in Covid-19 cases worldwide that far exceeds previous peaks. This has led to further travel restrictions and lockdowns in some countries, mainly in Europe and parts of Asia, which will likely weigh on economic growth in the near term.

Another potential risk to the outlook for 2022 concerns the withdrawal of the exceptional stimulus injected into the global economy since 2020, which could lead to increased volatility in financial markets – we already got a taste of this in the first week. 2022 – and provide another headwind for growth.

Several central banks, including the Bank of England, have already started raising interest rates to slow inflation, and the U.S. Federal Reserve signaled a more hawkish view of rates in December than at previous meetings, citing the improvement in the US labor market in recent months. .

As the near-term outlook is clouded by the rising number of coronavirus cases, the UAE’s high vaccination rate and relatively young population puts them in a strong position to withstand the current wave of infections. .

Khatija Haque, Chief Economist and Head of Research at Emirates NBD

The market is now anticipating three Fed rate hikes this year, in line with the central bank‘s own projections, which would increase borrowing costs for businesses and consumers in the United Arab Emirates as well as the United States.

Higher interest rates and a stronger US dollar could hamper UAE’s growth in 2022, but structural reforms implemented over the past two years will help boost investment and boost growth in the medium term.

These reforms include the extension of long-term residence visas to broader categories of residents and new pathways to citizenship, sweeping changes to people and labor laws, allowing 100% foreign ownership of onshore companies and, more recently, the decision to align the UAE’s workweek with that of major developed economies.

These measures will serve to reduce barriers to investment and attract human and financial capital to the UAE over the coming years.

Khatija Haque is Chief Economist and Head of Research at Emirates NBD

Update: January 10, 2022, 3:30 a.m.

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