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UAE economy suffers deeper economic contraction than expected

December 23, 2020 at 3:31 pm

A photo taken on January 6, 2020 shows the Dubai Financial Market in the Gulf emirate [KARIM SAHIB/AFP via Getty Images]

There is more bad news for the Gulf economy following reports that the UAE will likely suffer a deeper economic contraction this year than previously estimated. This follows a report earlier this week confirming that Saudi Arabi’s economy had also shrunk over five consecutive quarters.

Hurt by disruptions caused by the coronavirus pandemic and lower oil prices, the gross domestic product of the UAE, the Arab world’s second-largest economy, is estimated to shrink about six per cent in 2020, compared with a previous forecast for a decline of 5.2 per cent, said a report in Bloomberg citing Abu Dhabi’s central bank’s quarterly review yesterday. Growth is expected in 2021 by a mere 2.5 per cent.

The gloomy outlook is said to be slightly better than forecasts from the International Monetary Fund (IMF) which paints an even gloomier forecast for the UAE. The 190 country member organisation expects a decline of 6.6 per cent this year. The last time the UAE economy contracted by more than five per cent was in 2009, according to the fund.

READ: British expats head home as pandemic hits UAE economy

“As an oil exporter, the UAE is likely to feel the fallout from reduced global demand for oil due to the contraction of economic activities worldwide, including transportation and international travel,” the central bank report said according to Bloomberg. “Real oil GDP is projected to contract in 2020, corresponding to an average oil production of 2.8 million barrels per day for the year as a whole.”

Non-oil GDP is expected to grow by 3.6 per cent in 2021. This growth is said to be fuelled by an increase in fiscal spending, pick up in credit and employment as well as a stabilisation in the property market

Oil GDP next year is expected to remain flat as a result of OPEC+ production cuts. This year, crude production fell by 4.1 per cent year-on-year during the second quarter and by 17.7 per cent during the following quarter.