The UAE economy is expected to face further contraction, with a decline in GDP of 5.2 percent in 2020 compared to an earlier forecast of a 3.5 percent decline, mainly due to business setbacks triggered by the coronavirus pandemic.

In the UAE, many activities shut down in March, and the situation further deteriorated in the second quarter, resulting in negative real GDP growth in Q2 dropping an estimated 7.8% Y-o-Y, the Central Bank of UAE (CBUAE) said in its quarterly review.

"During the second quarter, there was a significant decline in economic activity in the UAE due to lockdowns which started in March and continued up to May. As a regional trade, tourism and transportation hub, the UAE economy was hit by the general ban on travel, while manufacturing production shrunk due to supply chain disruptions, limited export opportunities and subdued domestic demand," CBUAE said in its quarterly review.

Other insights from the quarterly report include:

  • The non-hydrocarbon GDP in Q2 is estimated to have declined by 9.3 percent Y-o-Y, after a drop of 2.7 percent in Q1.
  • Q3 would register a milder contraction of the non-hydrocarbon GDP that could linger, albeit at a much milder pace in Q4, assuming the virus is finally contained.
  • The non-energy growth is projected to contract by 4.5 percent for 2020 due to the adverse implications of the COVID-19 on economic activity and sentiments, reflected by Purchasing Managers Index (PMI) and the slowdown in credit growth.
  • The decline in employment across the UAE, would have further adverse implications on demand.
  • The central bank forecast assumes an increase in government spending averaging close to 28 percent in 2020, corresponding to the projected fiscal stimulus.
  • The forecast assumes a credit growth slowdown in Q3 followed by a slow recovery after that.

(Reporting by Seban Scaria; editing by Daniel Luiz)

seban.scaria@refinitiv.com

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