GCC economies have a strong start to 2022 but challenges remain

An Emirati visitor stands beneath the waving flags of countries participating in the Expo 2020. Gulf countries experienced a solid expansion in non-oil sectors in the first quarter of 2022. AFP

The UAE was probably the fastest growing economy in the GCC last year, according to a recent tweet by Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai.

The country's gross domestic product grew 3.8 per cent in real terms in 2021, a better outcome than most analysts had anticipated, and faster than the 3.2 per cent growth seen in Saudi Arabia.

Abu Dhabi's economy grew 1.9 per cent last year, as a modest contraction in the oil and gas sector offset non-oil sector growth of 4.1 per cent, data from the Statistics Centre of Abu Dhabi showed.

The recovery was most evident in the manufacturing, and wholesale and retail trade sectors as Covid-19 restrictions were eased.

The Dubai Statistics Centre has yet to release full year 2021 GDP data, but based on the figures for Abu Dhabi and the whole of the UAE, we estimate Dubai’s economy grew about 6.5 per cent in 2021.

GCC economies have seen a relatively strong start to 2022. The hydrocarbons sector has benefitted from increased oil production so far this year, with crude production in the first quarter up 12 per cent annually for the UAE and 19 per cent for Saudi Arabia.

Survey data for the first quarter of the year point to a solid expansion in non-oil sectors as well, with strong growth in business activity and new work in the UAE, Saudi Arabia and Qatar.

For Dubai in particular, Expo 2020 helped to boost activity over its duration, and the relaxation of travel restrictions contributed to a strong recovery in the tourism and hospitality sector over the same period. International visitor numbers have recovered to about 70 per cent of the pre-pandemic levels in the first couple of months this year. Hotel occupancy bounced back in February to more than 80 per cent after slipping in January as a result of the Omicron variant of Covid-19. The emirate’s hotels have been able to almost double their revenue per available room in the first two months of 2022, compared with the same period a year earlier.

The largest source market for international visitors to Dubai so far this year has been Saudi Arabia, displacing India from the top spot, and visitors from other GCC countries have returned in larger numbers as well as travel restrictions have been relaxed.

There has also been a sharp rise in the number of visitors from the UK and Europe relative to early 2021, as those countries have signalled a desire to “live with” the coronavirus.

With the reopening of other markets such as Australia, New Zealand and Singapore, we are optimistic that the recovery in international tourism will continue over the course of the year, underpinning growth in the UAE’s transport and hospitality sectors. The Fifa World Cup in Qatar later this year will also likely benefit the travel hubs in the UAE and neighbouring countries as well as provide a boost to Qatar’s economy.

Overall, the outlook for the region remains constructive. Expected fiscal surpluses will allow governments to spend as planned without needing to tap debt markets in a rising interest rate environment. Recent reforms to the personal and business laws in the UAE will likely continue to drive inward investment and attract talent.

Khatija Haque is chief economist and head of research at Emirates NBD