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Moody’s expects the UAE’s real GDP to grow by 6-7% in 2022.
Reuters file photo
Economists and analysts say the booming oil industry will expand at a double-digit pace this year, propelling the UAE’s economy to accelerate in 2022, while significantly improving the country’s fiscal and current account position.
A healthy non-oil sector will further add momentum due to the government’s reform agenda. “That said, regional tensions, oil price volatility and U.S. monetary policy are key factors to watch,” said economists at FocusEconomics.
“Economic conditions appear to be strong in the first half of 2022. Oil production has gradually recovered in the first six months of the year, which, combined with higher prices, bodes well for public coffers and government spending. Heading into the third quarter, oil production was in July rose to the highest level since April 2020,” said Oliver Reynolds, Middle East and North Africa economist at FocusEconomics.
Moody’s said in a recent report that higher oil prices over the next two years will lead to a significant improvement in the fiscal and external conditions of the UAE and other Gulf Cooperation Council sovereigns, reversing in part a sharp deterioration in their balance sheets since 2015. The rating agency expects the UAE’s real GDP to grow by 6-7% in 2022.
Moody’s expects oil prices to average around $105/bbl in 2022 and around $95/bbl in 2023, as geopolitical risks from Russian military incursion outweigh global oil demand risks.
“As a result, most hydrocarbon-exporting sovereigns will experience fiscal and current account surpluses, enabling governments to service debt, rebuild fiscal reserves and build foreign exchange buffers, thereby reducing government liquidity and external vulnerability risks,” Alexander Perjessy said. Moody’s Vice President and Senior Credit Officer.
“However, a material improvement in the credit profile will depend on the extent to which these sovereigns capture the near-term windfall and use it to address cyclical fluctuations in global oil demand and prices, as well as the long-term carbon transition. risk of structural credit constraints,” Moody’s said.
FocusEconomics noted that the UAE’s non-oil purchasing managers’ index for July was above the first half average, as demand strengthened and input cost inflation eased from a more than ten-year high in June. Despite relatively benign inflation, the government took further steps to protect consumers in July. On August 31, authorities unveiled a multiple-entry visa to benefit from Qatar’s hosting of the 2022 FIFA World Cup, which should support tourist numbers.
The UAE’s economic outlook improved significantly in the first half of 2022 as oil prices surged due to the war in Ukraine, according to the International Monetary Fund. The UAE’s oil revenue in 2022 will be around AED700 billion, up 46% from the October 2021 forecast of AED480 billion.
The International Monetary Fund said the Gulf economies will receive as much as $1.4 trillion in additional revenue over the next four to five years as oil prices remain high and headline inflation in the six economies remains low.
The IMF expects a 55% rise in oil prices compared to last year, which will improve their growth prospects but will also be a big windfall in terms of capital flows. — issacjohn@khaleejtimes.com
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