UAE non-oil sector can weather global slowdown, lead growth in 2023 – News

Tourism is one of the largest contributors to the local economy and is likely to continue to do well this year

Economists say the UAE’s non-oil sector has proven resilient to slower global growth and is expected to post faster growth this year.

According to a report published by Emirates National Bank Research, the non-oil sector will lead the growth in 2023.

“Despite weak growth in external orders, the PMI averaged 55.5 in the first five months of this year, above the average for the same period last year. Business activity has been supported by domestic demand so far in 2023.” Head of Research and Chief Economist, Emirates NBD Research Expert Khatija Haque said.

Tourism, one of the biggest contributors to the local economy, is likely to continue to do well this year.

“We expect full-year tourist arrivals to exceed 2019 levels, which will also underpin growth in transport and services this year. We have therefore raised our forecast for the UAE’s non-oil GDP growth this year to 5.0% from 3.5% previously.”

Dubai’s largest bank now expects the UAE’s hydrocarbon GDP to contract by 2.5% this year, down from an expansion forecast in early 2023, as oil-producing group OPEC+ extends output cuts until the end of 2024.

The research reported strong consumer demand in the first quarter, with both credit and debit spending rising steadily.

“We expect aggregate demand to be underpinned by continued population growth in the UAE, which may also be a driver of higher housing costs.”

The International Monetary Fund (IMF) said it expects overall GDP growth of 3.6% in 2023, led by non-hydrocarbon growth of 3.8%, driven by continued tourism activity and increased capital spending.

The IMF also commended the progress made by the UAE in increasing non-hydrocarbon revenues, including through corporate income tax.

Lower-than-expected oil prices so far this year have had less of a positive impact on the budget, but the UAE is set to post a budget surplus despite lower crude prices, Emirates National Bank Research said.

“We have revised down the UAE budget surplus to 4.9% of GDP from 5.6% previously, as we now expect Brent to average around $82 a barrel this year. However, growth in non-oil sector activity is likely to pick up tax and fee revenues in the budget.”

The IMF expects the current account balance to be 7.6% of GDP this year.

Inflation, which had slowed from a peak of 7.1% in July 2022 due to soaring energy and food costs, has started to moderate. Inflation in Dubai fell to 3.0% in May from 4.6% in January, and the Emirates National Bank expects inflation to average 3.5% in Dubai in 2023, down from 4.7% in 2022.