The UAE Economy in 2020: An Outlook
2020 is shaping up to be an important year for the United Arab Emirates. Dubai is hosting Expo 2020, and it will be sure to have a significant impact on the country. How will the UAE economy fare next year? We have the Emirati economic outlook that will help us answer this question.
The forecast for the UAE economy in 2020
The International Monetary Fund (IMF) has recently revised its growth projections for the Emirati economy for 2020. In their Regional Economic outlook on 28 October, they had initially given a provisional growth rate for the country’s gross domestic product (GDP) of 2.5 per cent in 2020. However, following an Article IV consultation with authorities from the Emirati government, they have revised the provisional 2020 GDP growth rate to 3 per cent. This is an increase from 1.6 per cent in 2019, proving that the future looks bright for the Emirati economy going into the new decade.
IMF Mission Chief to the UAE and Yemen Koshy Mathai concluded that economic growth is picking up momentum and the GDP growth rates are going to be the highest since 2016. What factors are most responsible for this increased outlook? There are two that stand out.
The effect of Expo 2020 on the UAE’s economy
Expo 2020 Dubai begins on 20 October and is expected to bring a significant boost to the overall Emirati economy. We previously noted that 80% of the construction for the Expo will be repurposed into the brand-new District 2020 business area, that has already seen high-profile tenants Siemens and Accenture sign leases.
Tourism to Dubai is expected to double to 6.6 per cent in 2020, coinciding with the event. The event, according to an independent study from Ernst & Young would contribute 1.5% of the overall GDP of the United Arab Emirates due to increased direct and indirect activity. Forecasts from the Institute of International Financial (IIF) also noted the contribution of spending in Dubai stemming from the Expo as a significant driver in Emirati economic growth.
The Abu Dhabi stimulus
In 2018, the emirate of Abu Dhabi announced a three-year stimulus plan worth 50 billion Dirhams, an amount equal to 1.8 per cent of their annual GDP, aimed at boosting their economy. Rating agency Moody’s even corroborated that this stimulus package was contributing to the UAE’s GDP reaching 3 per cent, acknowledging the “‘...expectations of continuous financial support from the Abu Dhabi government.’” The stimulus, as well as higher oil production, is expected to lead to average GDP growth in Abu Dhabi to be 2.5 per cent. The IIF has projected GDP growth in Dubai to be 2 per cent.
What are the medium-term risks to the UAE economy?
Once the impact of the Abu Dhabi stimulus and Expo 2020 subside, what other potential risks are there to the economy in the UAE? The latest report from the National Bank of Kuwait, NBK, notes how susceptible the Emirati economy is to fluctuations in oil prices. The weakening of oil prices could cause a decrease in government revenue.
The country is striving to diversify across industries. Still, NBK did acknowledge that “the concentration of the non-oil economy in a few sectors such as construction, tourism and logistics could be limiting as these sectors cannot continue to grow at the same rates as before.” As such, sustaining non-oil growth after the Expo is crucial.
The country has worked to implement measures supporting small to medium-sized enterprises (SMEs) that make up a significant part of the country’s economy, such as making it easier for them to access funding. They’ve also implemented fiscal measures such as a new 100% foreign direct investment law, and have continuously implemented measures to make it even easier for companies to do business. The IMF has also called the country to place more emphasis on medium-term measures rather than short-term spending.
Ready for your next opportunity in the global economy in the UAE?
Our team of UAE business experts at Europe Emirates Group has the expertise you need to take advantage of everything that awaits in this exciting time for the Emirati economy, whether it be in the Free Zones, near the Expo or on the mainland. Get started with us today.
CEO, Europe Emirates Group