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UAE looks set for V-shaped economic recovery in 2021

January 20, 2021
finance & economy

FAB’s Global Investment Outlook report forecasts a good return to growth as economies emerge from Covid-19, but with a period of stabilisation before acceleration in late 2021

The UAE economy is expected a V-shaped recovery this year due to strong rebound in tourism and oil prices as well as its strong links to emerging markets that will help return to the growth path, says a latest report.

Global Investment Outlook report released by First Abu Dhabi Bank (FAB) said the national economy should grow by around 2.5 per cent overall and 3.6 per cent for non-oil sectors this year as the economy emerges from Covid-19 pandemic and recorded a steep increase in economic activity.

Referring to the Central Bank of the UAE data, the report titled as ‘Paving the path for our investors to grow stronger’, said the UAE economy shrank by around six per cent in 2020 and five per cent for non-oil sector.

FAB’s predictions for the UAE include signs of an imminent improvement for incoming tourism, as pent-up travel demand and the country’s successful management of the Covid-19 virus converge to make the UAE a potentially top destination this year.

“The Dubai Expo’s rescheduling to open in October 2021 will add further strength, and an improvement in tourism will have a positive effect on other sectors, including retail and real estate activity, as the Covid-19 immunisation programme moves forward,” according to the report.

Hana Al Rostamani, deputy group CEO and head of personal banking at FAB, said Abu Dhabi and the UAE have worked tirelessly during 2020, continuing the drive towards economic transformation and reinforcing ‘our status as a world-class trading hub’.

“Given the country’s successful management of Covid-19, alongside with the rapid development of vaccines, we now see a more positive investment landscape,” she said.

The International Monetary Fund (IMF) and World Bank also projected a positive trend for the UAE economy following a quick progress on the vaccine development and swift implementation programme announced by the government. The IMF predicted 1.3 per cent growth for the UAE economy this year that will be accelerated to 2.2 per cent in 2022 while World Bank shared a conservative view with one per cent GDP hike in 2021 and 2.4 per cent in 2022.

Another research, conducted by FocusEconomics, forecasts that the UAE’s GDP will expand 2.6 per cent in 2021, which is up 0.2 percentage points from last month’s forecast, and 3.9 per cent in 2022.

This year, the economy is expected to grow as it recovers from its pandemic-induced slump in 2020. A pickup in oil demand and an uptick in tourist arrivals brought about by the postponed Expo 2020 in Dubai should boost economic activity. However, lingering uncertainty over the course of the pandemic clouds the outlook, according to the latest report by FocusEconomics.

“There were already some signs of a sequential pickup in activity in second half of 2020 and we expect to see a further strengthening in 2021,” Monica Malik, chief economist at Abu Dhabi Commercial Bank (ADCB), said.

“The global vaccine programme will be essential to this recovery, and thus should be more meaningful in second half of this year. Externally facing services sectors should lead this rebound, which will be further boosted by the hosting of Expo,” she added.

Saad Maniar, senior partner at Crowe UAE, said well-planned vaccination drive by the UAE government, improved relationship with Israel and Qatar puts the economy in the driving mode.

“Also, the fact that UAE being ahead in the deployment of technology and AI and moving toward the maturity in this area, will further contribute to the overall growth,” Maniar told Khaleej Times on Tuesday.

“I foresee the surge in the economy, and with that the inflation and the interest rates are likely to go up,” he added.

Vijay Valecha, Chief Investment Officer, Century Financial, said the UAE economy continues to advance as one of the most competitive and diversified economies in the region, backed by the country’s leading policies under the guidance of its wise leadership and goals outlined in UAE Vision 2021 and the UAE 2071.

“The World Bank report suggests out of 190 countries in ease of doing business. The UAE was ranked first in the Arab world and 11th globally. UAE was also ranked first globally in getting electricity, second in paying tax, fifth in dealing with construction permits, seventh in registering properties, and ninth in enforcing contracts. The business-friendly nature of the UAE means it is well-positioned to capitalise on the upcoming global recovery,” he said.

Valecha said the advanced technological and social infrastructure UAE possesses enabled it to tide over the Covid crisis successfully. The country has done mass testing and screening of its citizens, which helped put the Coronavirus crisis under control.

“High-speed internet infrastructure ensured a seamless transition to WFH environment. Advanced technology and its ability to control the pandemic meant UAE was open for business when other countries were going through a rigorous lockdown. UAE’s recent efforts to normalise relations with neighbouring countries and its recent reforms, including permission for 100 per cent investment should enable it to post a ‘V-shaped’ recovery,” he said.

Global recovery

For international markets, the FAB report predicts that a good return to global growth is possible by the second half of 2021, with developed economies entering a period of stabilisation as they emerge from Covid-19. Emerging markets were particularly impacted by the pandemic, but currency devaluations, along with massive fiscal and monetary stimuli in some of the biggest developing economies, suggest emerging markets may be in good shape for a period of gains.

An overvalued US dollar is also likely to weaken further than its recent falls during 2021, partially as a result of a reversal in many of the haven-seeking flows that drove investors into US assets earlier last year, which should also support emerging markets and commodities.

Alain Marckus, managing director and head of Investment Strategy and Investment Management, Personal Banking Group, said global markets will begin a clear recovery from the Covid-19 downturn during 2021, but this will start with a move towards stability rather than acceleration.

“Developed economies including the United States and Europe will feel continuing effects from cautious consumer spending, higher rates of unemployment following the pandemic, and business restructuring. The United Kingdom will also contend with the full impact of Brexit and its departure from the European Union,” he said.

“Effectiveness in responding to the pandemic will likely be a factor in the speed of recovery in different markets, including the impact of stimulus measures. After their worst year in several generations, the world’s largest developing nations are poised for a strong recovery in 2021. As soon as vaccines are widely available, their economic recoveries could be very strong, given the record stimulus released in many of the large emerging economies this year,” Marckus said.

GCC will benefit

Among Mena markets, GCC states will benefit from government stimulus programmes and extra liquidity injected into local economies in response to Covid-19. According to Fitch Ratings, off-budget stimulus has amounted to nearly 30 per cent of GDP in Bahrain and Oman, more than 10 per cent in Kuwait, Qatar and the UAE, and more than seven per cent in Saudi Arabia.

“GCC economies will also benefit as oil demand and prices continue their slow recovery from severe falls in second quarter of 2020. However, with the US Energy Information Administration (EIA) estimating the global demand for petroleum and liquid fuels was 92.38 million barrels per day in 2020, about 8.8 million barrels per day lower than the previous year, a return to the levels recorded in 2019 is probably not going to occur until 2022,” the report said.

FAB predicts the oil price for Brent will recover to average $58 per barrel this year, followed by $65 in 2022. In the medium term, improved growth should also result from well-received reform initiatives, as well as from normalised relations with Israel and Qatar.

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