UAE Central Bank projects real GDP to contract by 6% in 2020

Dubai: Economic activity in the UAE recovered partially in the third quarter, but the bounce back remained fragile, according to Central Bank of UAE (CBUAE).

In its ‘Quarterly Economic Review, Third Quarter 2020’, the CBUAE has projected real total GDP growth for the year 2020 to contract by 6 per cent, higher than the earlier forecast of a 5.2 per cent contraction for the year.

The the real non-hydrocarbon GDP projected to decline by around 5 per cent while the hydrocarbon GDP is also projected to shrink. The UAE’s oil production fell by 4.1 per cent year on year in the second quarter and by 17.7 per cent in the third quarter, in line with the agreement by OPEC+.

Recovery in 2021

For 2021, CBUAE foresees real total GDP to grow by 2.5 per cent and non-hydrocarbon real GDP by 3.6 per cent.

“Economic projections include exceptional uncertainty amidst Covid-19 repercussions and are thus subject to revisions,” the CBUAE said.

Expo boost

The central bank expects economic sentiment to improve in preparation for the Dubai Expo which was postponed to 2021.

Better tourism and hospitality data in Abu Dhabi in October show a recovery of occupancy and revenue, the best performance achieved since March 2020, and the improvement is expected to continue further.

CBUAE observed that during the third quarter of 2020, economic activity in the UAE recovered partially, after the waiver of lockdowns in the country and the resumption of international travel. This benefited the UAE, given its role as a regional trade, transportation and travel hub. Manufacturing production was also boosted as the supply chain resumed from the disruptions seen in in the second quarter.

The apex bank noted that the third quarter economic recovery was not as robust as expected, in addition to the weaker than initially expected fiscal spending growth and second wave of COVID-19 globally. As a result, real GDP growth projection for the year 2020 was revised downward to around -6 per cent.

Negative inflation

Consumer price inflation remained negative for the third quarter at –2.4 per cent year on year. Decline in rents and in the price of fuel and recreation and culture with overall subdued domestic demand kept overall prices low.

Real estate prices continued to decline, while the dirham depreciated, in both, nominal and real terms in line with the weakening of the US dollar.

Fiscal stance

The latest central bank data showed the net operating fiscal balance recorded a surplus at Dh4.2 billion, despite fiscal revenues declining by 41.3 per cent year on year Dh85.1 billion, while expenditures declined by 14.4 per cent to Dh80.9 billion.

Banking indicators

Most banking indicators improved during the third quarter supported by the enhanced Targeted Economic Support Scheme (TESS) extended by the CBUAE to banks.

Deposits increased on a yearly basis by 5.8 per cent, led by the government and government related entities (GREs). Meanwhile, credit increased by 4.9 per cent, supported by healthy financial soundness indicators. Interest rates in interbank markets continued to decrease in the third quarter due to global monetary easing.