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UAE economy to make a recovery in 2018

While the UAE economy was never exactly in trouble, recent numbers from previous years have shown a slight slump in output and GDP.

Now, new data shows that the Gulf nation could be making a rebound.

Oil sector influence undeniable

A new report by Oxford Economics in partnership with the Institute of Chartered Accountants in England and Wales (ICAEW), titled Economic Insight: Middle East Q2 2018, has revealed that UAE’s GDP growth would bounce back to 2.6% in 2018 after a difficult year, when growth slowed to a seven-year low to 1.5% in 2017. The drop was primarily due to the low oil price environment, ongoing fiscal consolidation measures, regional economic slowdown and OPEC+ oil production cuts.

On the other hand, they attributed the rise to recovering oil prices, expansionary fiscal stance at the federal and emirate levels, a buoyant trade and tourism environment and a pick-up in investment ahead of Expo 2020 in Dubai.

“Despite the diversified nature of the UAE economy, the collapse of oil prices in the past couple of years still weighed negatively on overall economic activity,” the report explained. “The oil sector contracted by 1.6% last year according to our estimates, mainly because of the OPEC+ mandate that saw the UAE cut its oil production by 150k b/d from an average of 3.09m b/d in Q4 2016 to an average of 2.89m in Q4 2017, representing a drop of nearly 6.4%.”

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A diversified economy is a healthy economy

UAE’s foresight to diversify its economy has paid off, as non-oil sectors remained strong through the previous years’ difficulties, growing 3%.

ICAEW expect a further pickup in growth to 3.7% in 2018, supported by improving business sentiments, a buoyant trade and tourism environment and higher public spending.

The tourism industry has proven itself a pillar of UAE’s economy once more, as Dubai airport passenger traffic was up 5.5% year on year in 2017 and hotel occupancy averaged over 86% in the first two months of this year. This positive trend is likely to continue in 2018, reinforcing the brighter outlook for the tourism industry in the UAE.

Additionally, the UAE federal government is expected to increase spending by 5.6% year on year, while Dubai, which traditionally accounts for 25-30% of UAE’s GDP, will lift spending by 20% in preparation for Expo 2020, with the allocation for infrastructure alone leaping by 46.5%.

The UAE continues to be the top destination in MENA for inward FDI, attracting US$11 bn in 2017. Sheikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai recently announced key changes to the country’s residency programme, including foreign investors in the country to be offered a 10-year residency visa, as well as 100% business ownership. This move aims to boost FDI by up to 15%.

Following the implementation of 5% VAT at the start of the year, inflation is expected to rise to 4% in 2018. This has hurt spending in the months following the new law, but data by the banking group Emirates NBD reveals that spending will recover in the long run, as customers acclimatize to the new taxation.

The real estate sector similarly took a hit due to subdued demand, higher supply of housing and a soft job market. However, the forecasted economic recovery, as well as rising oil prices, will eventually give a boost to sales figures.

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The Middle East makes a comeback as well 

“Middle East economies will see pick up in GDP growth this year and in 2019 but this doesn’t mean we should let complacency set in. With growing global trade tensions, geopolitical risks and rising interest rates, economic reforms are more necessary than ever in order to ensure stronger, sustainable and inclusive growth,” Mohamed Bardastani, ICAEW Economic Advisor and Senior Economist for Middle East at Oxford Economics, said.

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