UAE Central Bank raises non-oil economic growth forecast for 2023 on tourism boost

The banking regulator has also marginally lowered its inflation projection for this year to 3.1 per cent

Kayaking in the mangroves in Abu Dhabi. The UAE is recording a surge in its travel and tourism sector. Photo: DCT Abu Dhabi

The UAE Central Bank has revised its forecast for the country's non-oil economic growth for 2023 to 4.5 per cent, from 4.2 per cent in March, amid a surge in its travel and tourism industry, while inflation is projected to slow down marginally.

After expanding by 7.2 per cent in 2022, the non-oil sector is estimated to have grown at slightly lower pace in the first quarter of this year, the banking regulator said in its Quarterly Economic Review.

But with travel and tourism set to further accelerate during the remainder of the year, as well as growth in the property sector and a boost in foreign direct investment, the non-oil sector is expected to record strong momentum.

The travel and tourism sector is projected to contribute Dh180.6 billion ($49.18 billion) to the UAE’s economy this year, representing about 10 per cent of the total, the World Travel and Tourism Council said last month.

Dubai, which received 4.7 million tourists in the first quarter of this year, aims to exceed the pre-pandemic annual number of international visitors this year, Issam Kazim, chief executive of the Dubai Department of Tourism and Commerce Marketing, told The National last month.

Meanwhile, the UAE civil aviation sector has managed to restore passenger traffic to pre-coronavirus levels, the Central Bank said.

The country’s airports welcomed 31.8 million passengers in the first three months of 2023, an increase of 11.5 million passengers from the same period in 2022.

For 2023, as a whole, the regulator downgraded growth by 0.6 percentage points to 3.3 per cent, reflecting oil production cuts agreed among Opec+ members.

After growing at 9.5 per cent in 2022, with an average production of 3.1 million barrels per day, oil GDP growth in the first quarter of 2023 is estimated to have moderated to 3.1 per cent annually, in line with the Opec+ agreements, the Central Bank said.

This month, Opec+ members Saudi Arabia, the UAE, Iraq, Kuwait, Oman and Algeria said they would extend their voluntary oil production cuts until the end of 2024 as economic growth concerns weigh on the outlook for crude demand.

The group has total production curbs of 3.66 million bpd, or about 3.7 per cent of global demand, in place, including a 2 million bpd reduction agreed last year and voluntary cuts of 1.66 million bpd announced in April.

The UAE, Opec's third-largest producer, will have its voluntary cut of 144,000 bpd, which began in May, in place until the end of December 2024.

However, oil GDP growth is forecast to rebound to 3.5 per cent in 2024, the Central Bank said.

“Performance in 2023 and 2024 is subject to the evolution of the conflict in Ukraine, a faster than expected deceleration in global growth, further Opec+ cuts or increases in oil production and subdued production of other Opec+ members,” it said.

For 2024, the regulator maintained its gross domestic product growth forecast at 4.3 per cent, with the non-oil economy set to expand by 4.6 per cent.

The UAE's economy is estimated to have grown by 7.6 per cent last year, the highest in 11 years, after expanding 3.9 per cent in 2021, the Central Bank said.

The country aims to double the size of its economy to Dh3 trillion by 2031, with a focus on boosting non-oil exports and the tourism sector.

Non-oil foreign trade hit a record Dh2.23 trillion last year as the Arab world’s second-largest economy hastily put in place measures to reduce its dependence on hydrocarbons and boost its economic partnerships globally.

This was the first time the UAE’s non-oil foreign trade crossed the Dh2 trillion mark, with values for the January-December period increasing more than 17 per cent from the same period in 2021.

Meanwhile, the Central Bank also marginally lowered its inflation projections for 2023 to 3.1 per cent, from 3.2 per cent.

“The revision reflects lower energy and food prices, as well as a mild decline in inflation in Dubai in Q1 [the first quarter of] 2023,” the regulator said.

“Imported inflation is expected to be modest, owing to the disinflation trend in [the] UAE’s major trading partners, while rents, wages and the introduction of corporate income tax in June 2023 are expected to contribute moderately.”

In 2024, inflation is projected to slow further to 2.6 per cent, a downward revision from 2.8 per cent, in line with global trends.

Global inflation will decrease to 7 per cent this year and 4.9 per cent in 2024, from 8.7 per cent in 2022, according to International Monetary Fund estimates.

In April, the Institute of International Finance projected an even lower UAE inflation rate of 2.4 per cent in 2023, supported by lower global commodity prices and manufacturing unit value.

Short-term interest rates in the UAE continued their upward trajectory through the first quarter of 2023, in line with the moves by the US Federal Reserve.

This month, the Fed paused its tightening cycle after having increased interest rates to their highest level in 16 years to tame inflation and restore price stability.

Despite the rise in interest rates, demand for credit remains high in the UAE, the Central Bank said.

The CBUAE Credit Sentiment Survey for the first quarter of 2023 highlighted the “persistent credit appetite of the private sector, evident in the strong demand growth for loans that were coupled with financial institutions’ increased willingness to lend”, it said.

“The continued growth in credit demand was supported by a positive outlook on the domestic economy, which, so far, offsets the adverse impact of rising interest rates on loan demand during the quarter.”