Oil price recovery, Expo 2020 to provide impetus for UAE economic growth, Meed report says

Infrastructure spending on projects such as the Dubai Metro ahead of Expo 2020 is predicted to drive growth. Marwan Naamani / AFP

Economic growth in the UAE is expected to touch 4 per cent next year on recovering oil prices, gradually rising trade with Iran and the push provided by Expo 2020, according to a new report.

Real GDP growth is expected to go between 4 to 5 per cent a year between 2017 and 2020, according to a report from the business intelligence service Meed released yesterday. It is estimating this year’s GDP growth rate at 3.1 per cent.

That is a more optimistic outlook than other forecasters have been providing.

The IMF’s growth forecast is for 2.5 per cent next year, and 2.3 per cent this year.

Last month the World Bank cut the country’s growth forecast for this year to 2 per cent because of low oil prices and cuts in government spending. Last year the UAE economy grew at an estimated 3.4 per cent, it said.

The uncertainty of oil prices had evoked a conservative response from the government, but the outlook for oil is much more confident now, said Richard Thompson, the Meed editorial director, referring to its estimate.

“In Dubai, Metro and road projects besides airport, retail and real estate, and renewables and power projects would drive growth,” he said. “In Abu Dhabi, downstream manufacturing and tourism projects on Saadiyat and Yas Islands would be the growth drivers.”

The Meed outlook is based on an average price of US$50 a barrel of oil exported from the UAE next year, compared to $37 a barrel this year. It forecasts the oil price to rise by 10 per cent a year until 2020. The report expects the UAE to produce an average of 2.8 million barrels a day this year, and grow by 1.5 per cent a year until 2020 to keep up with demand.

Brent crude closed at $42.46 a barrel last week.

“The main risk associated with the forecast made in this report is a failure of the projected oil price increases to materialise,” the Meed report said.

Other agencies have also affirmed their confidence in the UAE economy this month.

The UAE is expected to export US$54.5 billion worth of oil, oil products and gas this year, a figure estimated to touch $64.8 billion next year, according to IMF this month.

Last Wednesday the credit rating agency Fitch affirmed long-and short-term issuer default ratings of 11 UAE banks based on strong ability of the government to support them.

“Abu Dhabi, and by extension the UAE, is one of the largest economies in the GCC, with solid growth prospects supported by significant government spending on infrastructure projects and an expanding non-oil private sector, particularly in Dubai,” it said.

Fitch this month assigned the UAE a AA credit rating with stable outlook.

A project pipeline of about $629 billion in the UAE that is yet to come onstream as of the middle of the year is also expected to boost the economy, according to the Meed report. The figure would be more than double of the worth of projects under way after the first half of the year, which was plagued by cutbacks in government spending, at $155bn.

A total of about $37bn worth of projects is expected to be awarded in the UAE this year, flat from last year, according to Meed. Of that amount, contracts worth $22.6bn have already been awarded during the first six months, mainly in the real estate, transport and power sectors in Dubai worth about $16bn.

While the lifting of the Iran sanctions holds a promise of an increase in trade with the UAE, sanctions from the United States still remain in place on more than 260 Iranian entities, including banks and oil tankers, that provide a trade barrier.

“But Iran is going to continue increasing its oil output, it will become more open, and soon we expect to see upstream oilfield development contracts awarded to the international oil companies,” Mr Thompson said. “Over the long term it is going to make a significant difference to the regional economy, and the UAE will benefit hugely.”

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