Dubai: An upturn in oil prices along with higher trading volumes with Iran could set off a recovery for the UAE in the near term. Added to this, sustained public and private sector activity in Dubai ahead of Expo 2020 should keep the momentum going, says the latest outlook on the UAE economy from Meed.
All of these should be enough to generate and sustain a $629 billion (Dh2.3 trillion) project pipeline.
The Meed report says that about $155 billion worth of major projects were under execution in the UAE by mid-2016.
Any recovery is expected to support an increase in major project spending in the emirates after a year of flat growth in 2016 stunted by cutbacks in government spending and a review of oil & gas and infrastructure projects in Abu Dhabi.
About $22.6 billion worth of project contracts were awarded in the UAE in the first-half of 2016, largely driven by real estate, transport and power projects in Dubai, which accounted for about $16 billion.
About $37 billion of contracts is likely to be made this year and similar to 2015’s.
The largest sectors for future projects are construction followed by transport. In addition to Abu Dhabi’s metro and light rail plans, there is the expansion of Al Maktoum International Airport and further phases of Etihad Rail’s federal railway to execute.
But risks will hover in the immediate environment. “The main risk associated with the forecast is a failure of the projected oil price increases to materialise,” Meed says. “This will intensify the challenges facing the government of the federation and individual emirates, but the UAE has the resources to deal with the financing requirements the low price scenario presents.
The report cites the main issue as “the impact low oil prices and reduced government income” on the economies of the five other emirates and Dubai, the most heavily leveraged of the seven, and in the projects environment.
Market share strategy
The Meed forecast for the UAE economy in 2017 is based on an average price of UAE oil exports being $37 a barrel in 2016, rising to $50 in 2017 and increasing by 10 per cent a year to 2020 It is also contingent on Opec continuing to “pursue the market-share strategy it adopted in 2014,” the report adds. “Thereafter, prices will be lifted by administrative measures and a tightening demand/supply balance due to consumption being stimulated by lower prices and high-cost output being removed from the market.”
Meed reckons the UAE will produce an average of 2.8 million b/d in 2016 and output will grow by 1.5 per cent a year in line with oil demand to 2020. But non-oil economic activity will stagnate in 2016 and then continue to grow in line with the trend seen in the past 10 years in 2017-20.
