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The UAE contracted more sharply than Saudi Arabia in 2020 due to weaker economic activity in Abu Dhabi and especially in Dubai, said Trevor Cullinan, Lead Analyst, GCC Sovereign Ratings, at S&P, in an email to Zawya.
Saudi Arabia’s economy is almost twice the size of the next largest GCC sovereign, the UAE, and so has an overweight bearing on the aggregate data. “We expect a broad recovery across hydrocarbon and nonhydrocarbon sectors, over the period to 2023.”
He said Abu Dhabi was hit by low oil prices last year due to it being more dependent on the oil sector (about 50 percent of real GDP compared with about 40 percent for Saudi Arabia). Dubai was hit due to lockdowns related to the COVID-19 pandemic, which affected the trade, travel, and tourism industry.
Delayed Dubai Expo 2020
For the UAE, it seems unlikely that the delayed Expo 2020 will be able to attract the visitor numbers previously hoped for as the effects of the global pandemic are likely to linger in many prospective visitor nations.
“With this said, the aggressive vaccine program in the UAE is clearly positive for the event, and should provide a platform for economic recovery,” Cullinan said.
UAE, Israel normalizing ties
On the normalization of relations with Israel, Cullinan said while it is certainly a “net positive for the outlook, we don’t believe it’s a game changer for the UAE. We have already seen signs that the visa-free travel afforded to Israeli citizens has been supportive of the tourism sector.”
“It remains to be seen whether some of the larger financial integration plans being touted will materialize, [and] whether a small country such as Israel will be able to make a sizeable growth impact on the UAE,” he added.
The ratings agency assumes average Brent oil price of $60 in 2021 and 2022 and $55 in 2023 and beyond. The agency expects a modest economic recovery in the GCC for 2021-2023 with real GDP growth of 2.5 percent after a contraction of about 6 percent in 2020.
(Reporting by Brinda Darasha; editing by Seban Scaria)
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