Dubai: Interim data for the second half of 2017 on the UAE economy point to of a gradual build-up in non-oil economic momentum in 2017 though headwinds remain, according to data compiled by Abu Dhabi Commercial Bank’s (ADCB) Economic Research.
“A key driver is the stronger outlook for project implementation in 2017, which will boost real investment growth. UAE’s project awards increased by a robust 27.8 per cent quarter on quarter and 40.9 per cent year on year in the third quarter. This was the highest level of project awards seen since the first quarter of 2014,” said Monica Malik, Chief Economist of ADCB.
Thanks to the strong performance in the third quarter, total awards in the first nine months of 2017 are up 7.6 per cent year on year. Dubai accounted for much of the awards in the third quarter, led by the construction sector. There was a jump in power sector awards with a $3.9 billion contract to build and run a 700-megawatt solar power plant. Transportation projects also increased during the period, largely driven by road projects around the Expo 2020 site. Around Dh10.8 billion of Expo related projects have been awarded in 2017.
While the strong project awards in the third quarter of this year will also help to build investment momentum in 2018, the outlook for new project awards in the fourth quarter of 2017 and the first quarter of 2018 looks strong. The project award outlook in Dubai remains robust, including projects related to Expo, while there are signs of a strengthening in project awards from Abu Dhabi in the fourth quarter of 2017. This has been led by the hydrocarbon sector with ADNOC awarding two projects in November to increase crude output from its offshore Upper Zakum and onshore Bab oilfields.
Analysts expect non-oil investments to be the main driver of UAE’s GDP growth in 2018. “We believe that gross fixed capital formation will be the main positive driver of real non-oil GDP growth in 2018. We also expect the external trade environment to remain supportive, again led by global developments as regional demand remains weak,” said Malik.
The higher oil price from September 2017 is expected to boost government revenues, though the oil sector will continue to be a drag on GDP growth in real terms with the Opec-led output cut. Non-oil external drivers are continuing to see healthy expansion, including trade and tourism. Jebel Ali Port’s throughput volumes saw solid growth of 5.3 per cent year on year in the third quarter.
“The data shows that the UAE is benefiting from the pick-up in global trade and demand whilst the Qatar situation is having a limited impact. Tourism numbers are continuing to benefit from earlier moves to liberalise visas for Chinese, Russians and some Indian nationals. We also believe that private consumption will receive a boost in the fourth quarter 2017 as households front-load some spending ahead of the introduction of VAT at the beginning of 2018,” said Thirumalai Nagesh, an economist at ADCB.