The UAE’s 2022 rebound could wane in 2023 as oil prices trend lower, but growth will remain slightly above long-term average.

Deutsche Bank research said lower fiscal and external surpluses are expected to be maintained this year, but, the Central Bank of the UAE’s continued monetary policy tightening will continue to anchor inflation expectations and contain second-round effects.

The German bank said inflation is expected to decelerate marginally in 2023, with its current forecasts saying it will be 3.4% this year, down from 4.9% in 2022.

Real growth meanwhile is forecast to fall to 3.8% in 2023 compared to an estimated 7.6% in 2022, but will still be above the long-term average of 3.2%.

In the medium term, the bank said the UAE’s economic activity will continue to be robust, supported by investments and upcoming mega projects aimed at diversifying the country, but growth is expected to decelerate, mainly due to a less supportive oil price environment.

The bank said the ongoing energy crisis in Europe is an opportunity for the UAE to strengthen its cooperation on key issues, such as energy security, which it said was already materialising, evidenced by a recent hydrogen project announcement which involves the emirates, Germany and Egypt.

“A slowdown in global growth, geopolitical instability, and policy slippages are some of the main risks. While in the short- to medium-term risks remain balanced, ensuring the sustainability and the resilience of UAE’s economic model hinges significantly on a successful diversification.

“As such, avoiding fiscal slippages, ensuring credible and continued commitment to the targeted reforms will be key in unleashing the full potential of the economy as well as in maintaining its competitive edge,” the bank added.

(Writing by Imogen Lillywhite; editing by Seban Scaria)