The UAE’s economy might have contracted by as much as 7.7 per cent in 2020, the steepest decline estimated for the GDP so far, with the core economic sectors --- the hydrocarbon, tourism and retail sectors --- arguably among the most affected by the pandemic, a leading global consultancy company said on Sunday.
In its “UAE Market Review and Forecast 2021” report, Knight Frank said that such “a seismic shock” would also go on to have major impacts on global economic activity, where it is estimated that global GDP decreased by 3.5 per cent in 2020.
The estimate of the UAE’s economic contraction in 2020 by the Institute of International Finance on Friday has been less dismal at 5.7% as compared to Knight Frank’s.
However, despite this shock, the UAE’s “commendable handling of the pandemic and fiscal and monetary stimulus plans have seen recovery ensue in these and other sectors,” Knight Frank report said.
Looking ahead, the UAE’s GDP is forecast to expand by 1.1 per cent in 2021 and by 4.0 per cent in 2022, Knight Frank said quoting data from Oxford Economics. “During this period, GDP growth rates between Abu Dhabi and Dubai are initially expected to fragment, where Abu Dhabi and Dubai are expected to record growth rates of 1.6 per cent and 5.4 per cent in 2021, before converging to 5.3 per cent and 5.0 per cent in 2022 respectively,” Taimur Khan, associate partner at Knight Frank Middle East, said.
“As the Covid19 pandemic raged, we saw social mobility norms curtailed in a manner never experienced before. Almost uniformly, the world came to a standstill, with flights grounded, businesses shuttered and curfews enacted in large swathes across the world,” said Khan.
The IIF report argued that the UAE had limited the health impact of the pandemic thanks to its relatively young population and a range of containment measures which have mitigated the spread of the virus and the number of deaths.
“We expect a modest economic recovery in 2021 with real GDP growing by 2.3%, following a contraction of 5.7 per cent in 2020. The recovery will be supported by the partial recovery in domestic demand and an increase in net exports. Our projections assume that the pandemic will be contained, and oil prices pick up to $52$/bbl in 2021,” said the Washington-based institute.
The IIF noted that the UAE could afford a modestly expansionary fiscal stance in 2021 given its large financial buffers, spare capacity, and a partial recovery in oil prices. “The reprioritization of spending helped limit the fiscal deficit to 7.3 per cent of GDP in 2020. We expect the deficit to narrow in 2021 to 4.8 per cent of GDP as the increase in revenues will more than offset the increase in spending.”
Prathyusha Gurrapu, head of Research and Advisory at Cushman & Wakefield Core, said Dubai outperformed most global cities as the government’s efficient measures to mitigate the impact of COVID-19 while maintaining business continuity, providing multiple stimulus packages to aid the economy and most importantly the recent vaccine roll-out has bolstered market sentiment and paved the way for a stronger 2021.
“With strong fundamentals and renewed business resilience, we expect 2021 to be the definitive year that Dubai has been preparing for years as we welcome the world for Expo 2020,” said Gurrapu,
“With signs of gradual revival seen across sectors, we remain cautiously optimistic for a stronger 2021 on the back of efficient government measures to mitigate the pandemic’s impact, easing in global travel restrictions, vaccinations for the wider public and undoubtedly the positive impact on the overall market created by the upcoming Expo 2020,” said Gurrapu.