UAE's non-oil economic growth set to accelerate in second half on higher government spending

Expenditure linked to Expo2020 will buoy future growth

A computer generated image of the UAE pavilion for the Expo 2020. Investment linked to the Expo will lift the UAE's non-oil GDP this year. AFP/Wam

The UAE's non-oil economy, which has been subject to lower growth in recent years, is set to get a boost in the second half of the year from a pick-up in government spending ahead of Expo 2020. 

Economists also say that an improvement in the fortunes of the global economy will also aid tourism and real estate. And consumer confidence, which has also been improving, is set to get a lift from the introduction of a value added tax in 2018 as people buy durable goods before the 5 per cent levy is introduced on January 1, 2018.

"We expect to see strong project awards in the second half of the year, especially in the final four months of the year," said Monica Malik, chief economist at Abu Dhabi Commercial Bank. 

"This should support investment activity in end-2017 but also help to build momentum going into next year. A lot of these projects are linked directly or indirectly to Expo 2020 and there is a need to progress with these given the deadline for the event."   

While there has been pessimism surrounding oil prices of late after crude entered a bear market amid an increase of supply globally, there is optimism about the non-oil economy of the UAE thanks to a rise in global trade as well as investment into infrastructure ahead of the Expo. 

As a result, the non-oil economy will rebound this year, the IMF said in May. 

Non-oil GDP is forecast to ­expand by 3.3 per cent this year from 2.7 per cent last year, it said. 

Abu Dhabi Commercial Bank and Standard Chartered, the London-based emerging market specialist lender, are both forecasting that the non-oil economy will grow 3.2 per cent this year compared to 2.7 per cent last year.  By contrast, the overall economy may continue to tread water this year because of lacklustre oil prices.  Amy McAlister, an economist at Oxford Economics, is forecasting that the UAE's economy will in total grow 1.7 per cent this year and 3.3 per cent next year amid a number of other risks such as the dispute between Qatar and other countries in the region including the UAE.   

The Egyptian investment bank EFG-Hermes said in May that it expects the UAE's GDP growth next year to reach 3 per cent on the back of improvement in the non-oil economy. For this year however, the investment bank expects economic growth to slip to 1.1 per cent. 

The UAE's economy grew 3 per cent in 2016, down from 3.8 per cent the previous year, following a lull in non-oil economic growth, according to the Federal Competitiveness and Statistics Authority. 

"We see a couple of risks to the forecast. An escalation of geopolitical risk in the region surrounding the Qatar crisis could see lower foreign investment flows into the Gulf in general," said Ms McAlister.  

"If oil prices remain lower for longer than expected, the weak fiscal position would result in higher public debt levels and a deteriorating credit position for the UAE, further constraining access to capital across the corporate sector. "