The UAE had a good economic finish in 2021, thanks to Expo 2020 Dubai and resurgent tourism, which boosted domestic demand.
While the tourism industry will likely take some time to fully recover from the Covid-19 pandemic, the latest data from the Department of Economics and Tourism show that international visitor numbers to Dubai in November rebounded to nearly 76% of 2019 levels, with December data expected to show further improvement.
Despite the obstacles given by novel coronavirus strains, hotel occupancy and revenue per available room, a crucial performance statistic determined by multiplying a hotel’s average daily room fee by its occupancy rate, have risen dramatically since 2020.
Even though the December Purchasing Managers’ Index (PMI) reading fell slightly, the average PMI for the fourth quarter of 2021 was the highest since the second quarter of 2019.
This suggests that the UAE economy saw greater GDP growth in the fourth quarter of last year. According to Emirates NBD, non-oil GDP would grow 3.5 percent in 2021, following a significant Covid-related drop in 2020.
While the spike in coronavirus cases clouds the near-term prognosis, the UAE’s high vaccination rate and relatively youthful population place it in a solid position to weather the current wave of illnesses without having to reimpose the harsh limitations put in place in the second quarter of 2020.
Oil prices rebounded rapidly in 2021, jumping more than 60% on average compared to 2020, boosting mood and helping GCC countries to dramatically reduce their 2020 budget deficits.
With oil prices forecast to average around $70 per barrel again in 2022, the UAE is likely to achieve a budget surplus in 2021, providing budgetary leeway for further public sector investment in critical development areas.
With Opec+ projected to increase oil output in the next months, the hydrocarbon industry is likely to contribute positively to UAE GDP growth in 2022 for the first time in three years. According to Emirates NBD, headline GDP growth would rise to 4.6 percent this year, up from a projected 1.9 percent in 2021.
While the view for 2022 is generally positive, uncertainty remains due to the development of the coronavirus pandemic.
The recently discovered Omicron form appears to be more readily spread, resulting in a global increase of Covid-19 cases that greatly outnumbers previous peaks. This has resulted in further travel restrictions and lockdowns in several nations, mostly in Europe and Asia, which will almost certainly weigh on economic development in the short term.
Another potential risk to the outlook for 2022 is the withdrawal of the extraordinary stimulus injected into the global economy since 2020, which could lead to increased volatility in financial markets – something we already saw in the first trading week of 2022 – and provide a further headwind to growth.
Several central banks, notably the Bank of England, have already begun to raise interest rates in order to restrain inflation, while the US Federal Reserve signaled a more hawkish perspective on rates in December than in prior meetings, citing recent improvements in the US labor market.
The market is now pricing in three Fed rate hikes this year, in accordance with the central bank’s own estimates, raising borrowing rates for UAE firms and consumers as well as those in the US.
Higher interest rates and a stronger US dollar may be headwinds to UAE economy in 2022, but structural changes made in recent years will enhance investment and drive growth in the longer term.
These reforms include the extension of longer-term residency visas to broader categories of residents and the creation of new pathways to citizenship, extensive changes to personal and labor laws, the acceptance of 100 percent foreign ownership of onshore companies, and, most recently, the decision to align the UAE’s working week with that of larger developed economies.
These steps will help to lower investment obstacles and attract human and financial resources to the UAE in the future years.