UAE to see sharp recovery this year: FAB report

Recovery will hinge on improvement in tourism, oil prices

Dubai skyline reflection with burj khalifa, United Arab Emirates. Image used for illustrative purpose.

Dubai skyline reflection with burj khalifa, United Arab Emirates. Image used for illustrative purpose.

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The UAE is likely to see a V-shaped recovery this year, as the economy emerges from the impact  of the COVID-19 pandemic, according to a report issued by First Abu Dhabi Bank (FAB) on Tuesday.

The recovery will hinge on factors such as the rebound in tourism and oil prices, as well as  the country’s strong links to emerging markets, the bank said in its “2021 Global Investment Outlook Report: Paving the Path for Our Investors to Grow Stronger”.

The UAE Central Bank has projected that  the national economy should grow by around 2.5 percent overall after falling by around six percent in 2020. The  non-oil sectors are expected to post a 3.6 percent growth, after shrinking by five percent.

FAB cited signs of improvement for incoming tourism due to pent-up travel demand and the country’s successful management of the pandemic.

The World Expo that is scheduled to open in October this year will add further strength, while the expected  improvement in tourism, partly fueled by the COVID-19 immunisation drive, will have a positive effect on other sectors, including retail and real estate activity. According to health authorities, the country is well on its way to vaccinate half of its population by the end of March .

States in the Gulf Cooperation Council (GCC) region will also benefit from government stimulus programmes and the 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 the gross domestic product (GDP) in Bahrain and Oman, more than 10 percent in Kuwait, Qatar and the UAE, and more than seven percent in Saudi Arabia.

Oil prices

GCC economies will also benefit, as oil demand and prices continue their slow recovery from severe falls in the second quarter of 2020.

However, the US Energy Information Administration (EIA) had estimated that  recovery is probably not going to occur until 2022, with the global demand for petroleum and liquid fuels hitting 92.38 million barrels per day (bpd) in 2020, about 8.8 million bpd lower than in the previous year.

FAB predicts that Brent oil price will recover to average $58 per barrel this year, and $65 in 2022. In the medium term, improved growth should also result from reform initiatives, as well as from the normalised relations with Israel and Qatar.

International markets

As for the  international markets, the report predicts that a good return to global growth is possible by the second half of 2021, with developed economies entering a period of stabilisation, as they emerge from COVID-19.

An overvalued US dollar is also likely to weaken further than its recent falls this year, the report said.

(Reporting by Brinda Darasha; editing by Cleofe Maceda)

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© ZAWYA 2021

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