The latest Economic Insight report for the Middle East, commissioned by ICAEW and compiled by Oxford Economics, has revealed that the UAE’s growth will slow in 2023, but the non-oil sector will remain resilient, holding up against high inflation and interest rates. Meanwhile, a new tourism development strategy is expected to make the country the next tourist hotspot and drive significant GDP growth.
According to the Q4 report, the UAE’s GDP growth will slow to 2.7% in 2023 but the non-oil sector will grow by 3.9%. UAE oil production is expected to be broadly flat in 2023 compared to 2022, which contributes to a significant slowdown in UAE GDP growth. However, Expo 2020 Dubai and the easing of Covid-related restrictions gave the economy a boost early this year and momentum has remained at a similar level throughout 2022.
The tourism industry will continue to be a key driver of the UAE’s growth. Dubai is again the world's busiest international airport, with total visitors to Dubai standing at 9.1m in the first eight months of 2022. The UAE has also launched its National Tourism Strategy 2031, targeting $27bn of investment with the goal of welcoming 40m hotel guests a year and raising the sector's contribution to GDP to $122bn (from $99bn currently). Tourism arrivals are expected to grow by an average of 10% per annum between 2023-2030.
Meanwhile, real estate continues to perform strongly, with Dubai property transactions hitting decade highs in recent months. Beyond real estate, there has been a push to deepen capital market growth in Abu Dhabi and Dubai. Despite equity prices being caught up in global market uncertainty, the flow of IPOs onto emirates' local bourses should maintain relatively strong performance of local equity markets.
The UAE also has an ambitious agenda to increase FDI through economic and trade agreements, most recently with India and Israel. The deal with India aims to increase bilateral trade to more than $100bn over the next five years. Just months after the India accord, an Abu Dhabi holding company announced a $2bn investment into India's green infrastructure, and this is likely to be the first of many deals.
Mark Billington, ICAEW Managing Director, International, said: "Despite oil prices falling from their previous highs, there is reason to be optimistic. With the UAE’s recent federal government budget including a rise in expenditure in 2023, we are expecting the non-oil sector to continue to grow into 2024.”
Scott Livermore, ICAEW Economic Advisor, and Chief Economist and Managing Director, Oxford Economics Middle East, said: "Despite global challenges, the strong growth for the non-oil sector will ensure the UAE remains resilient. 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.”
There are signs that inflation has peaked in the UAE. Recent data for Dubai show inflation slowing to 4.6% y/y in October, down from the 7.1% peak in July. Lower food and beverage prices have been the key driver of inflation easing along with transportation prices, tracking the decline in commodity prices. However, inflation is unlikely to fall back to pre-Covid levels when prices are falling, as growth will support price pressures, particularly in the real estate sector.