The Central Bank of the UAE (CBUAE) has projected that economic activity in the country will start to recover in the second half of the year.
In its first quarter report, CBUAE said “the pace of economic growth declined in Q1 2020 after a robust performance in the second half of 2019” following the “sudden and sharp contraction” for most of the UAE non-energy sector in March, due to the Covid-19 pandemic.
The first quarter economic activities witnessed mixed movements, with the UAE economy performing well during the first two months of 2020.
“The growth momentum has come to a halt, starting in March 2020, which slowed down growth in Q1 2020 significantly. It is projected that the second quarter would encounter a sharp contraction of the non-hydrocarbon GDP year-on-year, that could linger, albeit at a milder pace, in the third quarter, assuming the virus is contained,” the report said.
While the bank projects economic activity to pick up in the second half of the year, “recovery of economic sentiment will hinge on deploying policy support measures”, it stressed.
The Targeted Economic Support Scheme (TESS) by CBUAE and the economic stimulus packages announced by both local and federal governments are likely to weigh in positively on the Purchasing Managers’ Index, real estate prices, employment and credit growth with a positive impact on the overall sentiment once the virus risks are under control, the report added.
The bank has allocated Dhs256bn as part of the TESS programme to support the economy.
Non-oil economy projection
Overall, non-oil growth is projected to contract by 4.1 per cent in 2020 due to the adverse implications of Covid-19 on economic activity and sentiments, slowdown in credit growth, and employment across the UAE, reflecting the prevailing economic sentiment and
declining real estate prices.
“Furthermore, as an open economy, the UAE is likely to feel the fallback from reduced global demand on oil as well as non-oil exports while
tourism and related services, particularly hospitality and retail trade are grounding to a halt.”
Foreign direct investment is also assumed to fall from 8 per cent growth between 2017 and 2018, due to deterioration in investors’ sentiments, the report stated.
During the first quarter of the year, the UAE’s oil production increased by 3.7 per cent as the deal on production cut came to end and OPEC+ talks collapsed in March.
However, given the UAE’s commitment to the oil production cuts in line with the OPEC+ agreement to cut output by 9.7 million barrels per day effective May 2020, oil GDP growth is now estimated to contract by 2.4 per cent in 2020, the report stated.
The UAE’s average oil production is projected at 2.984 million barrels per day in 2020.