According to the Q1 report, the UAE’s GDP growth will slow to 3.2% in 2023 (down from 7.9% in 2022) and the non-oil sector will grow by 3.9% after growing 6.6% in 2022. UAE oil production is expected to be broadly flat in 2023, compared to 2022. However, high-frequency data, as well as anecdotal evidence about activity, indicate the non-oil economy continues to perform strongly. The PMI for the non-oil sector was 54.3 in February, representing a three-month high, having been firmly in expansionary territory through 2022. This current rise in activity is also leading to labour market improvement.
Meanwhile, real estate continues to perform strongly. Sale prices of residential homes had been falling for several years, but the market is now rebounding, with house prices rising in Abu Dhabi and property sales in Dubai hitting decade highs in recent months. A positive dynamic is expected to continue in the real estate market; however, a gradual moderate increase in rents is likely as new supply comes online during 2023.
The UAE’s tourism industry is also recovering. After receiving a boost from the World Cup in Qatar, Dubai is again among the world's busiest international airports, with passenger numbers rising 67% year-on-year in Q4 2022 to their highest levels since 2019. Tourism is expected to continue recovering and the report forecasts international visitors will increase by 20% in 2023, surpassing pre-pandemic levels.
Oil sector revenues are expected to remain robust despite oil prices weakening and OPEC+ cutting production quotas. This should enable the government to support overall GDP growth this year, while also running a budget surplus of 3.7% of GDP, down from 4.2% of GDP in 2022.
Hanadi Khalife, Head of Middle East, ICAEW, said: "Despite oil prices falling from their previous highs, there is reason to be optimistic. With the UAE’s recent trade agreements, tariffs have been significantly lowered. This leaves room for the UAE to expand and diversify its non-oil sectors even further and continue to grow.”
Scott Livermore, ICAEW Economic Advisor, and Chief Economist and Managing Director, Oxford Economics Middle East, said: "The UAE authorities are using the weakened oil prices as an opportunity to implement policies to encourage the development of new sectors such as the digital economy, creative industries, and scientific innovation as part of the “We the UAE 2031” vision.
It enters the next decade with an ambitious strategy, which will continue to diversify its economy across sectors and provide a roadmap for future growth.”
Recent inflation data show inflationary pressures have eased from last year’s peak. Disinflation is expected to continue in the coming months to 2.1% this year, down from 4.8% in 2022.
Despite the decline in inflation, the UAE Central Bank will continue to raise its policy rate, mirroring the path taken by the US Fed. A 25bps hike in March is likely with one or two more to follow. That will take the cumulative increase in rates to about 500bps in a little over a year, putting pressure on borrowing costs and weighing on lending.