Dubai: The Non-oil sector will be the defining factor in the future economic growth of regional economies such as the UAE and Qatar, according to EY [Ernst & Young] a multinational professional services firm.
Global rapid-growth markets (RGMs) will grow by over 4.5 per cent in 2015, according to EY’s latest Rapid-Growth Markets Forecast.
“With global oil production already high and supply prospects strong, growth in the UAE and Qatar hydrocarbon economies will soften in the coming years. Instead, GDP growth will be driven primarily by the non-oil sector,” said Bassam Hage, Mena Markets Leader, EY.
According to a recent report from KIPCO Asset Management Co (KAMCO), a Kuwait-based asset management company, a well diversified economy has helped UAE outpace the growth of most of its GCC peers in the past few years, and 2014 will be no different. The non-oil sector grew by 5.4 per cent in 2013, and is expected to expand faster in 2014, led by rising growth in the real estate, construction, and tourism sectors.
The UAE’s GDP is forecast to grow by 4.6 per cent this year, with non-oil growth expected to be 5.9 per cent. This increase will be driven primarily by the private non-oil sector, as fiscal stimulus is gradually scaled down in an attempt to consolidate the fiscal position.
Relatively mild price pressures, low interest rates and rising confidence from winning the World Expo 2020 bid are driving consumption and investment in Dubai. Dubai’s construction and hospitality sectors are also likely to benefit from the Expo win, in addition to Abu Dhabi and Sharjah, which are also predicted to witness increased tourism and business flows as a result.
Real estate and construction sectors will the biggest beneficiaries of the multi-billion dollar specialty projects being launched, while trade activity is expected to triple between 2013 and 2020, from Dh1.39 trillion to Dh4 trillion. Growth in the real estate and construction sectors will persist, but so will concerns around overheating. Real estate and construction sectors have recovered from the 2008 crisis, and are leading the non-oil growth. Their growth will be stimulated by projects worth $313 billion (Dh1.14 trillion) that are currently under construction across the infrastructure, residential and non-residential sectors. Real estate recovery also led the surge in equity markets in 2013.
The UAE’s Purchasing Manager’s Index (PMI) hit a new record in August as non-oil private sector companies posted strong growth. The upturn in the UAE’s non-oil sector gained momentum in last month with the headline seasonally adjusted PMI rising to a record high of 58.4, up from July’s 58.
“PMI data only strengthens our expectation that the economy will continue to perform well over the remainder of the year and into 2015,” said Simon Williams, Chief Economist for Middle East & North Africa at HSBC.
Qatar’s GDP is forecast to grow by 6.5 per cent through 2017. The oil sector in Qatar has benefited from a number of key projects, including the Bul-Hanine offshore oil field and the Idd Al-Shargi North Dome mega-project upstream oil expansion. However, GDP activity will be largely driven by continued double-digit expansion in the non-oil sector, helped by high government capital spending and surging population growth.