UAE economy set for strongest expansion in 11 years after 8.2% first-quarter growth
The UAE economy is set to post its strongest annual expansion since 2011 after it grew by 8.2 per cent in the first three months of this year on higher oil prices and measures to mitigate the impact of the Covid-19 pandemic.
Growth in the first quarter was driven by a sharp increase in oil production, as well as a noticeable improvement in the real non-oil gross domestic product, the UAE Central Bank said in its latest Quarterly Economic Review 2022.
The Arab world’s second-largest economy, which expanded 3.8 per cent in 2021, is expected to grow 5.4 per cent and 4.2 per cent in 2022 and 2023, respectively, according to the latest projections by the regulator.
The IMF projects that the UAE economy will grow 4.2 per cent this year while Emirates NBD forecasts growth of 5.7 per cent and Abu Dhabi Commercial Bank (ADCB) expects a 6 per cent expansion, supported by a sharp rise in the oil sector.
An expansion of 6 per cent would be the highest since 2011, when the economy grew 6.9 per cent.
ADCB recently raised its growth estimates “on the back of stronger oil sector growth outlook, Opec+ plans to bring forward production increases, alongside expectations that the UAE will increase oil output further from September”, its chief economist Monica Malik said.
Edward Bell, Emirates NBD’s senior director of market economics, said the lender also expects oil production to continue to increase as Opec+ output rises and the UAE invests more into upstream capacity, for both oil and natural gas.
There is a higher probability of stronger growth, the Central Bank said, as a result of oil output, higher prices and government initiatives to double the size of the manufacturing sector by 2031.
Oil prices have hovered at or above $100 a barrel since Russia’s military offensive in Ukraine started in February.
Brent, the key benchmark for two thirds of the world’s oil, closed in on $140 in March and is up about 36 per cent since the start of the year.
The UAE’s oil production in the first quarter averaged 2.95 million barrels per day while the country’s hydrocarbon GDP is estimated to have grown 13 per cent a year, data from the Central Bank showed.
“Depending on the developments in global economic activity, recessionary expectations and geopolitical tensions, there may be space for increased oil supply to balance the markets and stimulate global growth,” the Central Bank said.
Market dynamics, the pandemic and the Ukraine war, now in its fifth month, have prompted the International Monetary Fund, the World Bank and the Institute of International Finance to cut their forecasts for the global economy this year.
Based on the current supply and demand dynamics in the global oil market, the Central Bank expects oil GDP to grow 8 per cent and 5 per cent in 2022 and 2023, respectively, depending on the outcome of the Ukraine conflict and further post-Covid economic recovery gains.