Non-oil sector key growth driver for UAE, GCC

The Institute of Chartered Accountants in England and Wales' (ICAEW) Economic Insight for Q1 2019 sees the UAE's GDP to grow 2.2 per cent this year as compared to 1.9 per cent last year. But the real estate sector will remain weak and job creation to be modest.

"Both the oil and non-oil sectors are expected to be supportive of growth this year. The oil sector, which makes up around 30 per cent of GDP, is expected to grow by 2.5 per cent, while the non-oil sector is set to accelerate from an estimated 1.3 per cent in 2018 to 2.1 per cent in 2019," said Michael Armstrong, director for the Middle East, Africa and South Asia (MEASA), at ICAEW.

According to the UAE Central Bank's quarterly, the UAE's GDP will expand 3.5 per cent in 2019 compared to 2.8 per cent in 2018, mainly due to a Dh50 billion stimulus package announced last year and host of measures taken for the ease of doing business in each emirate across the country.

The apex bank sees non-oil GDP growth will grow at 3.4 per cent in 2019 against 2.6 per cent last year while oil GDP will expand at 3.7 per cent this year versus 3 per cent.

"We expect large-scale projects in preparation for Expo 2020 and new visa rules to continue boosting tourist arrivals in UAE, helping Dubai to maintain its status as a major global tourist and FDI destination," said Michael Armstrong.

The report expects GCC to post economic growth of 2.3 per cent in 2019, a marginal improvement on the previous year of 0.3 percentage points.

GCC growth engine

In the GCC region, the non-oil sector in the GCC is expected to be the primary engine of growth in 2019, which is as 3.1 per cent, said ICAEW's Economic Insight report.

"This should be supported by higher government spending, notably in the UAE and Saudi Arabia, continued reforms and project spending like Qatar's 2022 World Cup and the UAE's Expo 2020, as well as stimulus plans geared to support the private sector," the report said.

ICAEW sees 2.3 per cent GDP growth for the Gulf region for 2019 as compared to 2.0 per cent for 2018.

It noted that the GCC economy will be weighed down by renewed Opec-plus oil production cuts and lower oil prices, with the main source of growth coming from the non-oil sector.

The oil sector will also be dampened by lower prices, forecast at $64 a barrel in 2019, down by $7 a barrel from the average in 2018. The oil price trajectory suggests many GCC countries will struggle to balance their budgets in 2019, as the price needed to cover their expenses is well above the current forecast, notably in Bahrain and Saudi Arabia, which need average oil prices of $110 a barrel and $78 per barrel, respectively in 2019.