Adnoc’s Panorama Command Centre, where oil and gas flow data is monitored, in Abu Dhabi. Image Credit: Bloomberg

Abu Dhabi: Abu Dhabi’s GDP growth during 2019 is expected to touch 3.1 per cent as the government continues to ramp up investments in the energy and other sectors allied to it.

“We expect hydrocarbon-specific [oil and natural gas] real GDP to grow by 2.1 per cent, despite the likely cut in crude oil production starting January by about 90,000 barrels a day from the high levels reached in October 2018,” said Garbis Iradian, chief economist for the Mena region at the Washington-based Institute of International Finance (IIF).

“Exploration activity and high investment by Adnoc [the Abu Dhabi National Oil Company] in the energy sector will continue unabated despite the decline in global oil prices,” Iradian said. “We project non-hydrocarbon real GDP growth at 3.5 per cent in 2019, driven by public investment and private consumption.”

The IIF’s forecasts come as Adnoc continues to spread investments to boost production and meet future demand gains. A capital expenditure plan of Dh486 billion was recently approved by Abu Dhabi’s Supreme Petroleum Council to support the company’s five-year growth plan.

Commenting on the fiscal situation in Abu Dhabi, Iradian said it is on a sound footing. He expects the emirate’s fiscal stance to remain modestly expansionary through next year, with government spending increasing by at least 5 per cent to support economic growth.

“The fiscal break-even oil price that balances the budget is relatively low in Abu Dhabi — at $65 (Dh238.74) per barrel as compared with $78 per barrel in Saudi Arabia,” he added.

However, the prevailing low oil price regime will have an impact on the broader economy and is likely to lower private sector confidence, leading to a less expansionary fiscal policy.

“If oil prices remain above $60 per barrel in 2019, as it is in our baseline scenario, then the impact would be limited,” said Iradian.

“In general, the UAE is more diversified economy than other Mena oil exporters.”

Also, the economy is well managed, and the business environment finds itself among the 16 best economies in the world, and supported by infrastructure and political stability, he said.

“The resilience of the UAE banking system to lower oil prices has improved in recent years, thanks to the improvement in the supervision and regulation by the central bank,” said Iradian.

The ratings agency S&P also assigned Abu Dhabi a stable outlook on expectations that growth will steadily recover and the fiscal position will remain strong over the next two years.

“The exceptional strength of the government’s net asset position provides a buffer to counteract the effect of oil price swings on economic growth, government revenues, the external account, and increasing geopolitical uncertainty in the Gulf,” the rating agency said in a report earlier this month.

It expected growth to average 2.3 per cent between 2018-21 on the back of recovering oil prices and production, and a revival in investment.

In 2017, Abu Dhabi’s real GDP contracted by 0.5 per cent, mainly due to cuts in oil production to meet the UAE’s commitment to the Opec-Russia supply-control agreement.

In addition, non-oil sector growth was weaker than expected, given lower government spending over the past three years.

Plus, there was the lower private-sector credit growth and a slowdown in the real estate market.

“We project growth will rise gradually to 3 per cent by 2021 on the back of increased oil production, higher investment, and recovering domestic credit growth, bolstered by higher oil prices and improving demand in the region,” the report said.