By Gavin Gibbon
Non-oil sector growth expected to drop to 1.5% after Expo 2020 Dubai
Growth prospects in the UAE remain “relatively solid”, according to the latest NBK economic research report, supported by a 3.5 percent increase in the oil sector this year and a modest 2.2 percent growth, on average, in 2020 through to 2022.
The stable outlook, despite global and regional risks, is further boosted by expected one percent growth in the non-oil sector in 2019, “before trending up to around 1.8 percent during 2020-21 as the impact of structural reforms, the fiscal stimulus package and the Expo 2020 begin to be realised,” the report said.
However, going into 2022, it warned that growth is expected to ease to 1.5 percent as the impact of the Abu Dhabi stimulus and Expo 2020 eases.
It added: “The vulnerability of the economy to oil prices remains an important risk factor, and the concentration of the non-oil economy on a few sectors such as construction, tourism and logistics could be limiting as these sectors cannot continue to grow at the same rates as before.”
NBK expect headline inflation to rebound, starting in 2020, with deflation estimated at around -1.9 percent this year on the back of an expected 5.5 percent decline in rental prices.
“In 2020 and beyond, with the pick-up in demand, inflation is likely to gain more momentum and average 2.4 percent in 2020-22,” the report continued.
Meanwhile, weakening oil prices could hit government revenues, according to the report, which could see them drop from 29.2 percent of GDP in 2019 to average around 28 percent of GDP in 2020-22.
“On the other hand, expenditures will rise in 2019 and 2020 due to the government’s plans to boost economic growth. As a result, we expect the budget deficit to be about 2.5 percent of GDP in 2019 and widen to 3.6 percent of GDP in 2020-22,” the report added.