Dubai: The UAE has facing economic headwinds from decline in oil prices and global economic events from mid-2013 but the economy is expected to rebound from the second half of this year according to two research reports from credit insurance firm Coface and Credit Suisse, respectively.
Although the hydrocarbon sector remains the backbone of the UAE’s economy, the large contribution made by non-hydrocarbon activities to its GDP is mitigating the effects of lower energy prices on economic growth, according to the latest Coface economic publication.
Credit Suisse said the slowdown in economic activity continued through the first half of 2016 as the decline in oil prices dented business and investor sentiment in the UAE, while oil production also slipped lower. Data from the International Energy Agency indicated that the UAE’s crude oil output fell 0.8 per cent to 2.83mn bpd through the first five months of 2016.
“We expect economic activity to begin to strengthen in the second half of 2016 and into 2017. Overall, we project real GDP growth to ease to about 2.1 per cent in 2016 before rebounding to 3.1 per cent in 2017,” said said Bryan Plamonton of IHS Global Insight in a report prepared for Credit Suisse.
For several decades, the UAE has been investing in infrastructures, transportation, financial services, trade and construction, in order to increase the level of diversification in the economy. The share of non-hydrocarbon sectors in GDP increased to around 75 per cetn in 2015, up from around 65 per cent in the mid-2000s.
“The country’s relatively high level of economic diversification has made it less vulnerable to the shock in oil prices. Diversification efforts have helped the UAE to build up solid financial buffers that allow the government to continue supporting the economy’s non-hydrocarbon activities such as real estate, construction, trade, retail and tourism,” said Seltem Iyigun, Coface MENA economist
In addition to its diversification, the UAE’s safe haven status, its political stability and its resilient financial system have also helped the country to limit the negative effects of lower energy prices. “The UAE remains a very attractive economy for international investors” added Seltem Iyigun. “Its favourable business environment benefits from high productivity, excellent infrastructures, strong connections to international markets and a dynamic private sector,” said Iyigun.