Dubai: The UAE’s gross domestic product (GDP) is projected to grow 4.2 per cent in 2022 and non-hydrocarbon real GDP to increase by 3.9 per cent, according to the Central Bank of UAE.
The Quarterly Economic Review of the CBUAE for Q3, 2021 has forecast a 2.1 per cent GDP growth in 2021 with the real non-hydrocarbon GDP projected to increase by 3.8 per cent.
According to central bank data, the UAE’s oil production increased by 9.3 per cent year on year and by 4.3 per cent quarter on at the close of the third quarter in line with the agreement by OPEC+.
Positive outlook
CBUAE expects continued increase in public spending, positive outlook for credit growth, higher employment and better business sentiment, as Dubai
World EXPO continues to take place in Q1 2022. Furthermore, being a major tourism, transit and trade hub in the region, the UAE is expected to benefit from the removal of travel restrictions and events such the FIFA World Cup which is planned to take place in Qatar in Q4 2022.
Rising inflation is expected to result in an increase in the Federal Funds Rate which would lead to an increase in CBUAE’s Base Rate applicable to the Overnight Deposit Facility (ODF).
Real oil GDP growth projection for 2022 has not been changed and remains at 5 per cent, reflecting the expected increase in demand with majority of the world economies being vaccinated.
“Both, non-oil and oil GDP projections for 2022 are subject to upside risks, if global economies, trade and travel reach the full recovery point faster than expected, while downside risks are related to uncertainties around new variants and vaccination rates globally,” the CBUAE said.
Inflation and interest rates
CPI inflation rate in the UAE turned positive during the third quarter of 2021, for the first time since Q4 2018, at 0.6 per cent year on year. Inflation for the year is expected to remain roughly flat.
Rising inflation is expected to result in an increase in the Federal Funds Rate which would lead to an increase in CBUAE’s Base Rate applicable to the Overnight Deposit Facility (ODF), which provides an effective interest rate floor for overnight money market rates in the UAE. The central bank said it will be monitoring economic and financial developments and the liquidity situation of banks operating in the UAE to support the financing needs of the private sector.
CBUAE reaffirmed in Q3 2021 its continued commitment to supporting the economic recovery through the Targeted Economic Support Scheme (TESS) and confirmed that withdrawal of emergency measures introduced in response to the pandemic will be gradual and appropriately timed.
Revival in non-oil growth
According to CBUAE’s assessment of economic activity and growth, the non-oil sector continued its upward trend in Q3 2021, as a result of the pick-up in local and global demand, while the country continued to be a leader in containing the spread of the coronavirus.
Latest Purchaning Manager’s Index data, the UAE economy posted rapid growth in the non-oil private sector economic activity in December. The PMI data published by IHS Markit showed growth running at a marked pace throughout the fourth quarter amid the start of the Expo 2020 and an easing of travel restrictions. Data showed higher new orders continued to support expansion in non-oil private sector activity in December. In fact, the upturn was the most marked since July 2019, with around a quarter of respondents seeing an increase in output from November.
