Dubai: The recently released detailed data on the UAE’s GDP by the Federal Competitiveness and Statistics Authority and analysed by the Economics Team at Abu Dhabi Commercial Bank (ADCB) showed real headline GDP growth accelerated to 1.7 per cent in 2018 from 0.5 per cent in 2017.
The growth was largely driven by stronger real oil sector growth. The oil sector grew by 2.8 per cent in real terms in 2018 with the rise in oil output, after contracting by roughly the same magnitude in 2017.
“We see headline real GDP growth accelerating to 2.2 per cent in 2019 with both oil and non-oil making a positive contribution. We maintain our forecast of real nonoil GDP growth of 2 per cent in 2019, after having already lowered our estimate in April based on official indications of softer growth in 2018,” said Monica Malik, Chief Economist of ADCB.
2.8%Growth of UAE’s oil sector in real terms last year
Detailed GDP data also showed that the real non-oil growth moderated to 1.3 per cent last year and is expected to recover gradually in 2019. Latest set of data include some revisions in the historical data, with 2017 UAE real non-oil GDP growth lowered to 1.9 per cent from the earlier estimate of 2.5 per cent.
“We believe that the further deceleration in 2018 real non-oil growth reflects a number of ongoing headwinds (domestic and external), alongside the introduction of VAT. A number of key sectors saw softening real growth in 2018, including the financial and utility sectors. Construction activity continued to contract in 2018, albeit at a slightly more moderate pace than in 2017,” said Malik.
Contrary to the overall growth trend, data showed real wholesale and retail sector growth accelerated in 2018 (though remained soft), which stands out given the introduction of VAT. Indeed, real GDP by demand data for 2018 showed that consumption contracted by 0.8 per cent with private spending falling by 0.5 per cent.
Dh27bAmount raised by UAE in revenue from VAT in 2018
The UAE raised Dh27 billion in revenue from VAT – equivalent to around 1.8 per cent of GDP. “We see revenue from VAT rising in 2019 after the initial impact on private consumption from the introduction wanes and there is some stabilisation in household spending,” said Thirumalai Nagesh, an Economist at ADCB.
ADCB Economics Team has forecast a gradual pick-up in nonoil growth in 2019 based on their assumptions of stronger investment activity; normalisation of household consumption, albeit remaining weak; and a more supportive fiscal backdrop(including no new fiscal reforms).
“Our forecast continues to take into account ongoing challenges, including slowing global growth, still-soft regional demand and the strong dirham. These external factors and rising supply in certain sectors such as real estate, hospitality, etc) are resulting in ongoing price discounting by corporates, impacting their margins and contributing to a soft labour market,” said Nagesh.
Stronger year on year oil production in the first half of2019 according to ADCB economists should support real oil sector growth this year. However, they highlight some downside risks to their 2019 oil price forecast ($70.3 p/b) if there is a further deepening in global trade tension and/or a greater slowdown in global growth.