The UAE’s economy is expected to grow by more than 6% this year, after growing 3.8% in 2021, supported by a rebound in tourism, construction and Expo 2020-related activity from Dubai, said the International Monetary Fund.
A 6% expansion would be the highest since 2011, when the economy grew 6.9%.
The UAE’s economy grew by 8.4% in the first quarter of this year, beating initial estimates, driven by rising oil prices and successful Covid-19 mitigation measures.
“Economic growth has been robust this year,” said Ali Al-Eyd, who led the IMF team that met with UAE authorities Nov. 2-17.
“Fiscal and external surpluses increased further, benefiting from higher oil prices, as well as the removal of temporary Covid-related fiscal support to businesses and households as the pandemic gradually waned.
“Increased global uncertainty has led to higher financial inflows, contributing to rapid house price growth in some segments.”
As oil prices fell well above $100 a barrel and were at a nearly two-month low on Monday, due to a slowing global economy and a potential drop in demand from China, Brent, the benchmark for two-thirds of global crude, is still up 13% since the start of the year.
The UAE’s foreign trade for the first six months of this year exceeded 1 trillion dirhams ($272 billion), compared to 840 billion dirhams for the same period before the pandemic.
Revenue from the tourism sector exceeded 19 billion dirhams in the first half of this year and the total number of hotel customers during the same period reached 12 million.
Growth in hotel guest numbers soared 42% compared to the same period before the pandemic.
“Looking ahead, the UAE’s economic outlook remains positive, supported by domestic activity,” Al-Eyd said.
The fund expects the country’s non-oil economy to grow by around 4% in 2023 and accelerate further reforms.
The seasonally adjusted S&P Global Purchasing Managers Index climbed to 56.6 in October from 56.1 in September, well above the neutral 50 mark separating expansion from contraction.
Inflationary pressures, which are relatively low in the UAE compared to the rest of the world, are expected to gradually moderate, Al-Eyd said.
Inflation in the Emirates is expected to reach 5.6% in 2022, according to the Central Bank of the United Arab Emirates.
Further development of domestic capital markets, including through local currency debt issuance by the federal government, will also support growth, Al-Eyd said.
Despite global economic uncertainty and headwinds, rising oil prices and healthy fiscal reserves will help the UAE mitigate risks, he said.
“Banks have adequate aggregate capital and ample liquidity, and asset quality has improved slightly from pandemic-era peaks,” Al-Eyd said.
The overall net income of the 10 largest lenders in the UAE increased by more than 24% in the first quarter of 2022, boosted by a significant increase in their net income interest revenues, with bank profitability expected to increase as interest rates rise further.
GCC banks will start next year on solid footing and return to near pre-pandemic levels in 2022, S&P Global Ratings said in a report earlier this month.
“Credit growth to the domestic private sector has improved. The evolution of real estate prices and the expected further tightening of financial conditions underline the importance of close and continuous monitoring of financial stability,” Mr. Al-Eyd said.
“We commend the UAE Central Bank’s continued efforts to strengthen the macroprudential framework and promote the effective management of non-performing loans.”
The IMF has recognized and commended the UAE for “major efforts” related to its National strategy and action plan to combat money laundering and the financing of terrorism further strengthen the regulatory regime.
The bucket seized and confiscated assets worth more than 4.73 billion dirhams ($1.29 billion) in the 12 months to the end of July, Hamid Al Zaabi, director general of the UAE Executive Office for fight against money laundering and the fight against the financing of terrorism (AML / CFT), says The National in an interview last month.
Assets worth 2.54 billion Dh were seized by the authorities while assets worth 2.19 billion Dh were confiscated by United Arab Emirates authorities in the period of one year.
The IMF said continued progress on planned fiscal reforms, including the planned introduction of corporation tax and the phasing out of business fee structures, will help support growth and fiscal consolidation.
“Reforms under the UAE 2050 strategy are welcome and should be pursued, with a focus on economic diversification, to ensure a balanced energy transition and strong long-term economic growth,” Mr. Al-Eyd said.
“Ongoing structural reforms, such as those aimed at supporting private sector employment and women’s labor market participation, increasing trade and foreign investment, and harnessing the benefits of technology and education, will contribute to ensuring sustainable and inclusive growth”.
Updated: November 22, 2022, 5:00 a.m.