Dubai: Optimism regarding the UAE economy’s recovery has increased significantly among consumers and residents, surveys reveal.
Data also shows how new patterns of spending and saving are emerging a year into the health crisis, especially as pandemic-related restrictions are seen easing in different parts of the UAE.
The UAE economy contracted 5.8 per cent last year but is on track to post 2.5 per cent growth this year, view economists, in line with the UAE central bank’s latest indications. The central bank had revealed that it expected to see a full economic recovery in 2022, with growth rising to a 3.5 per cent rate.
Global management consultant McKinsey & Company looked at 45 different countries, assessing how consumer habits shifted as a result of the pandemic.
Research from McKinsey & Company found countries like India, China, and Indonesia were relatively relaxed about their spending, while Europe, the Americas, and Japan had honed in on only spending on the essentials. But how did spending among residents and consumers fare in the UAE economy?
Shifting spending trends
“Optimism among consumers (residents) regarding the UAE’s economic recovery has increased significantly,” revealed McKinsey & Company, based on survey data collected in the UAE at the starting months of this year, while adding the upbeat sentiment has reflected in their spending habits as well.
Moreover, with the UAE easing restrictions and pandemic-induced precautionary steps in hopes of accelerating consumer spending and economic recovery, analysts foresee a faster pick-up in consumer spending in the months to come. But until it comes into effect another existing trend will remain.
“Consumers are more price conscious and are increasingly looking for ways to save. Most consumers have also permanently adopted new shopping behaviours,” experts at McKinsey & Co further added.
McKinsey & Company also added that consumers in the UAE are hopeful about a quick economic recovery from the pandemic.
How vaccines, remittances boost prospects
After recording the quickest recovery in history in the wake of the COVID-19 pandemic, economists widely view that the global economy is expected to kick into higher gear in 2021.
Economists further add that with easing in restrictions and higher vaccine roll-out the obvious trend is that consumers will gradually begin to spend massive savings, and do more shopping, restaurant dining and traveling.
“The UAE has been one of the global leaders in its vaccine rollout thanks to the aggressive procurement of vaccines, numerous vaccination centres and wide eligibility,” noted James Swanston, Middle East and North Africa Economist at UK-based Capital Economics.
“Restrictions will probably be eased further in the coming months,” Swanston added. “As restrictions are eased in the second half of the year, the outlook will improve.”
“Finally, remittances grew last year and are likely to increase further over the coming years as recoveries get underway.”
Steady growth in loans
UAE’s loan growth has been picking up pace and economists have been widely weighing that this is indicative of the country's healthy financial profile despite the global economic slowdown triggered by the COVID-19 pandemic.
Loan growth in the UAE averaged 5.24 per cent from 2009 until 2020, independent statistics show, reaching an all-time high of 10.2 per cent in November of 2014 and a record low of 1.70 per cent in December of 2017.
Bank loans to non-residents accounted for 8.3 per cent of the total loans provided by UAE banks in the 11-month period in 2020, which is estimated at a mammoth total of Dh1.795 trillion, according to the apex bank's latest figures.
More borrowing equals more spending
Consumer spending made up 40 per cent of the UAE’s GDP in 2019, so if residents aren’t spending or borrowing – or simply put, if there is no cash circulating the economic ecosystem – then that will have an impact on economic activity.
Moreover, when individuals decide not to spend or not borrow, but rather save money and not spend it because they think that they should have precautionary savings, delves into an economic theory – from renowned economist John Keynes in the 1930s – on how a lack of consumption hurts economies.
And as expected, with so much economic uncertainty surrounding the coronavirus outbreak, people held onto their money in March and April, and consumer spending dipped to a record lows worldwide, the household savings rate hitting its highest in decades, and growth took a hit as well.
UAE household spending tracks normalcy
Economists see household spending in the UAE returning to normal, with spending patterns already improving much in the past months. Consumer spending in the UAE is expected to grow by 4.1 per cent in 2021, compared to a 5.7 per cent contraction in 2020, according to a report by Fitch Solutions.
Spending on clothes and shoes will take the second position in total household expenditure, with a 4 per cent growth. The report referred that improving economic growth in 2021, recovering oil prices, a revival of international tourism, and stimulus measures will support disposable incomes in the UAE.
Hence, the average annual disposable income in the UAE is predicted to nominally grow by 12.4 per cent, versus a contraction of 19.6 per cent in 2020.
With spending in the UAE estimated to exceed Dh950 billion in 2021, analysts view that the economy is well on track to stage a recovery by this year and the sluggishness or any slow-down in recovery will remain dependent on how residents and business owners implement spending and saving strategies.
Spending on an upward trend since August 2020
According to last published figures released by the Federal Competitiveness and Statistics Authority (FCSA), consumer spending jumped 63 percent in August compared to March, when pandemic-related uncertainty peaked worldwide.
The statistics showed that hoteliers were among the top beneficiaries, as spending rose 29 percent in August compared to March. The number of hotel establishments (hotels and hotel apartments) reached 1,136 by the end of 2019.
Spending in restaurants improved by 75 percent in August, while in the apparel sector, expenditure increased by 78 percent in the reference period as shopping malls and outlets started to reopen nationwide. However, expenditure on food supplies and medications, both online and conventional purchases, slowed at 32 percent compared to March.
How does borrowing/spending help economic recovery?
When it comes having cash-at-hand through let’s say loans, studies have shown how in the two decades between 2000 and 2020 – while the rate of savings worldwide have more or less trended downwards with interest rates hitting all-time lows during this time period – the growth rate of borrowing improves.
While reining back spending, cutting back on expenses and holding onto cash is the go-to solution during such dire times and circumstances, it may not be helping when it comes to aiding hopes of a return to normalcy for all. So, what can a saver or a person looking to closely budget do in a situation like this?
Higher savings or opting to get loans from banks mean that consumers have cushions that can help absorb overwhelming expenses without digging the hole deeper.
But just as importantly, having a higher portion of income allocated to savings or to pay back loans mean that living expenses are evened out – and consumers can adjust their budgets.