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The UAE’s non-oil sectors have proven to be resilient to slower global growth and are expected to see faster growth this year, say economists.
According to a note released by Emirates NBD Research, the non-oil sector is expected to lead growth in 2023.
“The PMI has averaged 55.5 in the first five months of the year, higher than the average over the same period last year, despite weakness in external order growth. Business activity has been supported by domestic demand so far in 2023,” said Khatija Haque, head of research and chief economist, Emirates NBD Research.
The tourism sector, one of the largest contributors to the local economy, will likely continue to perform fairly well this year.
“We expect full-year visitor numbers to exceed 2019 levels, which will also underpin growth in the transport and services sectors this year. We have thus revised up our forecast for non-oil GDP growth in the UAE to 5.0 per cent this year, from 3.5 per cent previously,” said Haque.
With oil-producing group Opec+ extending production cuts through the end of 2024, Dubai’s largest bank now expects the UAE’s hydrocarbons GDP to contract by 2.5 per cent this year, down from a forecast expansion at the start of 2023.
The study reported robust consumer demand in the first quarter, as both credit and debit spending grew at a solid pace.
“We expect aggregate demand is supported by continued population growth in the UAE, which has likely also been a driver of higher housing costs.”
The International Monetary Fund (IMF) said overall GDP is projected to grow at 3.6 per cent in 2023, with non-hydrocarbon growth of 3.8 per cent driven by continued tourism activity and increased capital expenditure.
The Fund also praised the UAE’s progress to enhance non-hydrocarbon revenue, including through the corporate income tax.
Emirates NBD Research said lower than expected oil price year-to-date is less positive for the budget but the UAE will still post a budget surplus despite lower crude prices.
“We have revised down our forecast for the UAE’s budget surplus to 4.9 per cent of GDP from 5.6 per cent previously as we now expect Brent oil to average around $82 a barrel this year. However, the growth in non-oil sector activity will likely contribute to additional tax and fee income in the budget,” it said.
While IMF projected a current account balance of 7.6 per cent of GDP this year.
Inflation, which has slowed from a peak of 7.1 per cent in July 2022 due to a surge in energy and food costs, has started to unwind. Dubai’s inflation fell to 3.0 per cent year-on-year in May from 4.6 per cent in January and Emirates NBD expects inflation in the emirate to average 3.5 per cent in 2023, down from 4.7 per cent in 2022.
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