Dubai-based bank Emirates NBD has revised the UAE's real GDP growth for 2022 to 7%, up from the previous figure of 5.7%, following faster-than-expected growth early in the year in both the oil and non-oil sectors.

However, for 2023, the outlook for growth is lower at 3.9%, due to deteriorating global economic backdrop, higher interest rates and a stronger USD, the bank said in a recent report. Non-oil sector growth will slow in 2023 to 3.5%, from previously projected 4.0%, it added.

Official data put Q1 2022 GDP growth for the UAE at 8.4% year-on-year (YoY) with the non-oil sectors expanding 8.8% YoY off a low Q1 2021 base.

Emirates NBD's GDP upgrade for the current year is mostly due to higher forecasts for oil and gas sector growth this year. The UAE’s crude oil output rose by 13% in the first eight months of this year, relative to full year 2021 output. In addition, the UAE has announced that it will accelerate plans to boost oil production capacity, with a view to reaching 5 million barrels per day (MBD) capacity by end-2025 rather than the previous target date of 2030.

This indicates greater investment in oil and gas infrastructure, which will underpin growth in the sector over the medium term, even if current production is curtailed by OPEC+ in the coming months, the bank said.

"We now expect hydrocarbons GDP to grow by 13% in 2022 (10% previously) but have cut our forecast for 2023 hydrocarbons GDP to 5% from 10% previously," Khatija Haque, Head of Research & Chief Economist, said in the report. 

Elsewhere, the Purchasing Managers’ Index rose to the highest level in more than two-and-a-half years in August, as businesses reported strong growth in activity and new work in recent months.

Retail businesses have reported double digit growth in consumer spending in H1 2022 and hotels have been in a position to increase their revenues per available room by almost 20% on 2019 levels while increasing occupancy as well.

The real estate market has also recovered from its pre-pandemic lows, with strong growth in both the number and value of transactions in H1 2022, in large part due to foreign investment, the report said.

The outlook for 2023 is more uncertain as the global economic backdrop deteriorates seemingly on a weekly basis, Emirates NBD said.

"The UAE is an open economy – the value of external goods trade reached 137% of GDP in 2021 - and thus not immune from slowing global economic (and trade) growth. With a pegged currency, competitiveness is eroded as the US dollar strengthens and higher borrowing costs are likely to weigh on both consumption and private sector investment next year."

(Writing by Brinda Darasha; editing by Seban Scaria)