The UAE's economic growth prospects for 2023 face key obstacles, including a decline in oil output resulting from OPEC-agreed production cuts, a slowdown in the non-oil sector due to higher interest rates, and subdued external demand. The real GDP of the UAE is forecast to expand at a slower pace of 3% in 2023, compared to the robust growth rate of 7.6% observed in 2022, according to GlobalData.
GlobalData’s latest report, 'Macroeconomic Outlook Report: UAE', reveals that with around 30% of the country's GDP and 13% of total exports, the oil and gas industry plays a crucial role in the UAE's economy. The year 2022 witnessed a significant economic upturn, with a growth rate of 7.6%, the highest since 2007, primarily fuelled by surging oil and gas prices. However, the decline in oil and gas prices since the beginning of 2023, expected to persist throughout the year, directly impacts the UAE's economic growth prospects for the current year.
Indrajit Banerjee, Economic Research Analyst at GlobalData, comments: “To make the economy less vulnerable to external shocks, it remains crucial for the government to persist in its endeavour to diversify the economy. Abu Dhabi’s plan to invest US$2.7 billion to double the size of the manufacturing sector by 2031, and the adoption UAE Circular Economy Policy 2031 that focuses on manufacturing, food, green infrastructure, and sustainable transport, reflects the government’s urge to transform to a more diversified economic base.”
In terms of sectors, mining, manufacturing and utilities activities contributed 31.2% to the gross value added (GVA) in 2022, followed by financial intermediation, real estate, and business activities (22%), and the wholesale, retail, and hotels sector (15%). According to GlobalData, in nominal terms, these three sectors are forecast to grow by 2.9%, 3.7% and 2.5%, respectively, in 2023 as compared to 9.6%, 12.4% and 8.4% in 2022.
The UAE has undertaken several development projects with an investment of US$23 billion in July 2022 to significantly boost construction and allied activities and create jobs opportunities. Some of the ongoing projects include the railway network project under Etihad Rail’s supervision of AED40 billion (US$11 billion) by 2024, the construction of Dubai urban tech district by 2024, the expansion of the capacity of the Rashid solar park by 2025. These projects are expected to drive the construction activities, which GlobalData forecasts to rise by an average of 2% over 2023 – 2025.
On the external side, the exports growth is projected to slowdown from 4% in 2022 to 2.6% in 2023. On the domestic side, real household consumption expenditure is projected to grow at a slower pace at 4% in 2023, compared to 8.4% in 2022.
The UAE is categorised as a very low risk nation and ranked 10th out of the 153 nations in GlobalData Country Risk Index (GCRI Q4 2022). The country’s risk score is lower in the parameters of political environment, macroeconomic, social, and environmental risk when compared to the average of Middle East and North African nations.
According to GlobalData analysis based on information from the OPEC database, the UAE holds 7.2% of the oil reserves and 4% of the natural gas reserves in the world in 2021. In May 2022, ADNOC made a significant discovery in Abu Dhabi, uncovering 650 million bbl of onshore crude oil reserves. This discovery has further augmented the UAE’s hydrocarbon reserves base. As a result, the country is expected to maintain its prominent position as a major producer and exporter of hydrocarbons in the foreseeable future.
Banerjee concludes: “Even though, the UAE's economic growth outlook for 2023 faces challenges, the ongoing diversification efforts and development projects aimed at strengthening the economy will play a vital role in reducing its vulnerability to external shocks.”
Read the article online at: https://www.hydrocarbonengineering.com/refining/23052023/globaldata-uae-economic-growth-to-suffer-in-2023-due-to-market-challenges/
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