The UAE economy should grow by about 2.5 percent this year after contracting by 6 percent in 2020 due to pressures relating to the global coronavirus pandemic and low oil prices.
That’s according to a 2021 Global Investment Outlook Report published by First Abu Dhabi Bank (FAB), the UAE’s largest bank.
The report, written by the bank’s industry experts, suggests a V-shaped recovery is possible for the UAE, with the sharp contraction of the past year followed by a steep increase in activity as the economy emerges from Covid-19.
FAB said important factors include a recovery in tourism and oil prices, and strong links to emerging markets.
Based on projections from the Central Bank of the UAE (CBUAE), the national economy should grow by around 2.5 percent overall and 3.6 percent for non-oil sectors, after shrinking by around 6 percent in 2020 and 5 percent for non-oil.
According to the report, FAB’s predictions for the UAE include “signs of an imminent improvement for incoming tourism, as pent-up travel demand and the country’s successful management of the Covid-19 virus converge to make the UAE a potentially top destination this year”.
It noted that the rescheduling to October 2021 of Expo 2020 Dubai will “add further strength”, adding that an improvement in tourism will have a positive effect on other sectors, including retail and real estate activity, as the Covid-19 immunisation programme moves forward.
FAB also predicted that the oil price for Brent will recover to average $58 per barrel this year, followed by $65 in 2022.
“In the medium term, improved growth should also result from well-received reform initiatives, as well as from normalised relations with Israel and Qatar,” it added.
Alain Marckus, managing director and head of Investment Strategy and Investment Management, Personal Banking Group, FAB said: “Global markets will begin a clear recovery from the Covid-19 downturn during 2021, but this will start with a move towards stability rather than acceleration.
“Developed economies including the United States and Europe will feel continuing effects from cautious consumer spending, higher rates of unemployment following the pandemic, and business restructuring. The United Kingdom will also contend with the full impact of Brexit and its departure from the European Union.”
He added: “Effectiveness in responding to the pandemic will likely be a factor in the speed of recovery in different markets, including the impact of stimulus measures. After their worst year in several generations, the world’s largest developing nations are poised for a strong recovery in 2021. As soon as vaccines are widely available, their economic recoveries could be very strong, given the record stimulus released in many of the large emerging economies this year.”
He said that, among MENA markets, GCC states will benefit from government stimulus programmes and extra liquidity injected into local economies in response to Covid-19.
According to Fitch Ratings, off-budget stimulus has amounted to nearly 30 percent of GDP in Bahrain and Oman, more than 10 percent in Kuwait, Qatar and the UAE, and more than 7 percent in Saudi Arabia.
The report added that GCC economies will also benefit as oil demand and prices continue their slow recovery from severe falls in Q2 of 2020 although a return to the levels recorded in 2019 is probably not going to occur until 2022.