Preparations for the upcoming Dubai Expo 2020 will support growth in the UAE’s non-oil sector, from 3.3 percent in 2017 to 3.7 percent in 2018, according to NBK’s latest economic update.
According to the report, the non-oil sector will grow as much as 4 percent in 2019. This growth will help the UAE offset continued weakness in the oil sector, and deliver growth of about 3 percent in its overall economy.
The NBK report notes that the UAE economy’s relatively high levels of diversification have allowed it to outperform man of its GCC peers, with GDP growth expected to rise from 2.2 percent in 2017 to 2.6 percent in 2018 and 3.4 percent in 2019 – above the regional average.
Growth in the oil sector, however, will remain capped in 2018 due to the OPEC production cuts, but is expected to gradually rise from 2019 onwards, with the country expected to continue to invest in expanding oil production capacity.
ADNOC’s recent extension of the Upper Zakum Offshore field – its largest – is expected to increase output capacity by approximately 350,000 barrels per day to one million barrels per day by 2024, allowing the UAE to increase overall production capacity to 3.5 million barrels per day.
Additionally, NBK expects prices to face upward pressures due to the upcoming implementation of value-added tax (VAT) in 2018, which is expected to 2 percent to inflation for a period of one year. Overall, NBK believes inflation will increase from 2.5 percent in 2017 to 4 percent in 2018.
Given the outlook, NBK believes that inflation will moderate to 3 percent in 2019 as the initial impact of VAT wears off.
NBK also expects that the UAE’s fiscal balance will improve, but remain at a modest deficit of 2 percent of GDP in 2018 and 2019.
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