The UAE is 'well positioned' to reap the benefits of higher oil prices and improved business confidence, according to a new report from BMI Research
The UAE’s Real GDP growth will accelerate over the course of the next two years despite limited growth in oil production, bolstered by strong business confidence and construction activity related to Expo 2020, according to a new report from BMI Research.
In the report, BMI noted that the diversified nature of the Emirati economy means that the country is “well positioned to reap the benefits” of higher oil prices and business activity across the Gulf.
However, BMI predicts that any gains will be “somewhat mitigated” by the extension of OPEC output cuts through to the end of 2018, which will weight on growth, particularly on the more oil-dependent emirate of Abu Dhabi.
“Our oil and as team now forecasts production to grow by 0.4 percent in 2018, down from 1.3 percent previously,” the report noted. “As oil prices recover and the OPEC deal nears its end, we expect cut barrels to gradually re-enter the market in 2019.”
That said, BMI noted that it does not expect a major jump in production once the OPEC deal expires, particularly as production is largely reliant on maturing fields.
The report also noted that the UAE economy will benefit from the confidence associated with higher oil prices.
“With fiscal revenues primarily derived from the oil sector, movements in oil prices continue to determine its [the UAE’s] ability to support the economy through generous tax regimes and social transfers, thereby influencing consumer and business sentiment,” the report said.
BMI expects that increases in oil prices will support a more expansionary fiscal policy, which in turn will support household spending and encourage businesses to resume expansion plans.
According to the report, the construction sector will be a key growth driver going forward, particularly in the run-up to Expo 2020 Dubai, with BMI forecasting real growth of 8.9 percent in 2018 and 9.7 percent in 2019.
“It [Expo 2020] will also encourage investment in tourism infrastructure,” the report said. “While Dubai will likely see the most significant economic gains from the Expo, we expect other emirates to register robust construction activity going forward, especially driven by ambitions to diversify the economy away from oil in Abu Dhabi.”