Dubai: The UAE’s economy like all other global economies will be impacted by the COVI-19 outbreak and the faster recovery of growth will depend on preserving demand and jobs, according to a Standard Chartered report.
“Looking beyond current disruptions, preserving underlying demand is key. The medium-term viability of private businesses in a range of sectors depends on how quickly and sustainably demand for goods and services recovers. This makes preserving employment a key priority,” said Bilal Khan, senior economist, Middle East North Arica & Pakistan (MENAP), Standard Chartered.
The UAE authorities have taken several measures including allowing employers greater flexibility in amending contractual terms, in a bid to prevent outright job losses by under-pressure businesses. “Ultimately, however, much will depend on how quickly and sustainably economic activity normalises,” said Khan.
Standard Chartered expects UAE’s GDP to contract by 4.6 per cent year on year in 2020. Last year the economy grew by 1.4 per cent. The downward revision mainly reflects a revival of the OPEC++ agreement. Oil output cuts under the agreement will likely see hydrocarbon GDP contract year on year.
“With global oil prices under pressure we still see Brent crude averaging $35/bbl in 2020. Lower UAE oil production is likely to adversely impact twin (fiscal and current account) balances, particularly as non-hydrocarbon export earnings are hit by a global recession," said Khan
Non-oil economy activity is likely to weaken on external, domestic demand. Standard Chartered expects UAE’s non-oil economic activity could contract by 4.7 per cent year on year in 2020.
“We expect the global economy to see its deepest contraction since the Great Depression. The ensuing hit to global trade, travel and logistics is likely to adversely impact external demand for the UAE’s services-oriented economy,” said Khan.
Locally, ongoing virus-related disruptions mean domestic demand is also likely to remain sluggish in the near term. Businesses face this challenging operating environment with uncertainty over how long it might persist.
The Central Bank of the UAE (CBUAE) and governments at the federal and emirate level have announced a number of measures to support various business sectors to combat the impact of the virus outbreak on the economy.
To accommodate borrowers facing cash-flow challenges that could impact debt-servicing, the CBUAE has announced up to $70 billion (about 17 per cent of GDP) in liquidity support to the banking sector. In addition, federal and emirate-level governments have announced targeted measures, particularly for SMEs, to ease near-term operating challenges. “Taken together, these measures should help ensure business continuity as the economy gradually reopens,” said Khan.