The First Abu Dhabi Bank headquarters in Abu Dhabi (FAB)
It will take time for the stimulus and relief packages to lift business and consumer sentiments. First Abu Dhabi Bank projects an upturn later this year. Image Credit: Gulf News Archive

Abu Dhabi: The UAE’s stimulus package should start seeing results from the second-half of the year... but until then, the economy will have some serious adjustments to go through.

“We expect to see a sharp contraction for the second and third quarter GDP combined,” said Alain Marckus, Managing Director at First Abu Dhabi Bank. But “remain constructive for Q3-20 and beyond with an Dh100 billion stimulus and other measures, such as relief via grants and on indirect taxes to support the economy.

“2020 will be viewed as a year of “pause” for the economy, with a normalised pick up expected in Q1-2021.”

The Abu Dhabi bank had, prior to the COVID-19 outbreak becoming widespread, had forecast UAE’s non-oil growth at 3 per cent in 2020. “We are expecting between 2-2.3 per cent for 2020.

“Sufficient and swift measures have been taken by the government, which will see stability in the overall economy. As the situation slowly normalises, normalcy will resume... including an element of domestic spend.

“One has to remember much has been spent on infrastructure by the government. And such investments automatically lead to more spending here at home in the longer term.”

Gone through such upheavals

Banks will lead the economic relief efforts this time, with the UAE Central Bank announcing further rollback of mandatory cash reserves. This will allow more to flow into the wider economy and, hopefully, contain the slowing down of market movements.

“This isn’t the first time we’ve been in this situation,” said Marckus, who is also Head of Investment Strategy and Investment Management, PBG. “There has always been an economic plan in the UAE. Long-term growth in the non-oil economy remains on track. This, coupled with hydrocarbon sales, will allow the UAE to expand into areas of the global economy that make sense.”

What of oil prices?

FAB has revised its price forecasts for Brent crude this year.

“With Opec and Opec+ not being able to reach an agreement on production cuts, we do not expect prices to lift from the present range $20-$35 until Q3-20,” he said. “The range for Q4-20 and beyond will move to $40-$55 as we get into 2021.”

But for that, oil producers will need to get into a production cut deal that actually works.