On Sunday, Governor of the Central Bank of the UAE, Mubarak Rashid Al Mansouri, forecast that the UAE’s non-oil sector economy will grow at a rate of 3.1% this year and increase to 3.5% in 2018. According to Emirates NBD’s monthly PMI survey, the non-oil sector grew in August at the fastest pace in 30 months.
Despite low oil prices in recent years, Mansouri attributes the UAE’s strong growth forecast to the diversification of the nation’s economy. The IMF expects the UAE’s economy as a whole to grow by 3.4% in 2018 as oil prices continue to stabilize and recover.
Economic Diversification Credited
The chief economist at Abu Dhabi Commercial Bank, Monica Malik, credits the recovery in non-oil activity to an increase in investment for projects related to Expo 2020 in Dubai, and an increase in trade and tourism. Malik expects to see a further increase in non-oil growth in 2018 as Expo 2020 draws nearer. However, she cautions that non-oil growth will not exceed pre-2015 levels in the next two years.
Sultan Ahmed Bin Sulayem, chairman, and CEO of UAE port operator DP World estimates that UAE trade growth will increase 4.31% in 2017. Sulayem sees this increase as an encouraging growth prospect for the nation’s logistics sector.
Strengthening Labor Market
A recent Middle East Job Seeker Confidence Survey found that 74% of respondents expect business conditions in the UAE to improve over the next year, and 53% expect more career growth opportunities in the next six months, setting the stage for stronger growth in 2018. In January, a survey of 250 UAE employers by recruitment agency Hays found that 72% plan to hire more staff, compared with 37% in 2016.
The Middle East Job Seekers Confidence Survey reported that 47% of respondents expect an increase in their compensation over the next six months. Similarly, 63% of respondents expect that their family’s financial situation will improve over the same period.
Fiscal Improvement Predicted Despite Low Oil Prices
Despite an increase in government spending, current projections show the UAE’s budget deficit will fall in 2017. Malik attributes this improvement to the government’s commitment to fiscal reform.
Although Malik expects that the introduction of VAT in 2018 will dampen non-oil sector growth, she estimates the tax will increase government revenues by 1.6% of GDP in the first year. Looking forward, she expects the UAE to outperform other Middle Eastern and North African economies.