UAE economy aims for 3.1% growth in 2021: IIF

The UAE has planned to bring in a strong economic growth rate of 3.1% in 2021 following a 5.7% decline in its gross domestic product this year, as per the forecast of Institute of International Finance (IIF).

Washington based IIF was of the opinion that, the UAE economy will go down more this year than predicted in May. Garbis Iradian, IIF’s chief economist in the Middle East and North African region said that, “the economy is expected to contract by 5.7% and will have a modest recovery next year with 3.1% growth.”

He also added that, Dubai’s economy is expected to fall by 8% due to the effects of pandemic and loss of income from the tourism, aviation and other services.

Iradian said that, “The UAE should pursue more diversified and knowledge-driven economy. In order to improve the efficiency and raise the economy, privatising of non-strategic GRE’s and enforcing competition and laws would be beneficial. Building a new and more diverse growth model would enable the country to leverage its pool of well-trained workers and its effective partnership between the public and private sectors.”

The IIF economist has predicted that even amidst slow growth, the UAE’s external position would remain strong. The present account surplus would remain significant while narrowing.

The unemployment rate rose to 10% according to the IIF report, especially for the expats. The PMI increased to 51 points, which shows the expansion of the private sector.

The UAE central bank, in June, infused AED 16 billion which is equivalent to 1.2% of the GDP into the financial system to increase the liquidity. “With the help of various megaprojects, the government-related-entities’ credit grew by 16.5% while the private sectors credit declined by 1.5% year on year in July.”

The reports show that the real estate market faces a dull sustainable recovery. “The continued decline in housing costs has been a major drag on inflation, and we expect the average CPI to decline by 2% in 2020. Real estate prices have been falling since late 2014 mainly due to oversupply, weaker consumer sentiment in the context of prolonged low oil prices, and recently Covid-19.”, says the report.

The report also says that the UAE remains the regional destination for the Foreign Direct Investments (FDI) and it attracted $11 billion in 2019 which sums up to be almost 3% of the total GDP. “The elevated FDI is due to the infrastructure, friendly business environment and political stability. The authorities have set a target of 5% of GDP in 2021, with more inflow of FDI.”

The IIF is expecting a 5% average drop in GDP this year, across the GCC. Whereas the oil-exporting countries in the Mena region has showed a challenging economic environment.

The IIF report shows that the recession and widening financial risks were all caused due to the fall of oil prices and the outbreak of COVID-19. “However, major GCC oil exporters are better off with large reserves”, says the report.