UAE battles countervailing economic forces

20 March 2019
Slippage in the non-oil sector is consolidating the pivot of the UAE’s economic growth towards the emirate of Abu Dhabi

Things were looking up for the UAE economy at the end of 2018. Abu Dhabi had unveiled an expansionary federal budget of AED60.3bn ($16.4bn) for 2019, which followed its June announcement of a AED60.3bn three-year stimulus package for the capital.

After three challenging years, companies could at last look forward with some optimism to a year of strong business growth. It did not last long. The economic signs and revised market projections in the first three months of 2019 have provided a wake-up call to the underlying risks to the UAE economy.

Not least of these are the results of the Emirates NBD purchase managers’ index survey for the UAE in February, which saw the fastest fall in the employment component of the index since records began, as well as a similarly dramatic slide in selling prices, within the UAE’s non-oil sector.

Also of concern is the ongoing weakness in the real estate sector, which according to S&P will persist in Dubai into 2020 – a year that had been expected to bolster the property market, but which in the end may merely see the bottoming out of the now long-running downturn in the segment.

Such backsliding in key indicators of non-oil economic health is a significant concern for the country, particularly in the context of yet further plans for real estate, retail and hospitality project delivery in the emirates.

It is also hurting the Dubai construction sector, which saw the value of contracts completed in the fourth quarter of 2018 outstrip contract awards by $1.6bn. Aviation, another key sector, is equally under pressure amid rising fuel prices and interest rates, as well as rising global competition.

The oil sector, on the other hand, is experiencing an uptick in activity as Abu Dhabi pushes forward with investments, especially in unconventional gas exploration and petrochemical production expansion.

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