Services sector to drive UAE recovery in 2021, ADCB says

Employment will rise gradually in sectors such as aviation and hospitality as activity rebounds over a number of years

Foreign direct investment into the UAE increased 44 per cent to Dh73bn last year. Victor Besa / The National

The UAE's economy will continue to improve this year, driven by higher oil prices, a rapid Covid-19 vaccination campaign and a services sector rebound, according to Abu Dhabi Commercial Bank.

A strong rebound in economic activity is expected in the second half as global travel restrictions are eased, the lender said in its latest UAE economic report titled The road back to normal – a year of two halves.

“The next phase of the UAE’s recovery will be vaccination-led, allowing for a return in consumption back towards services,” the report said.

“We see strong pent-up demand, especially related to leisure-related tourism, as witnessed at the end of 2020, which would be magnified when health concerns retreat.”

The UAE moved quickly to limit the fallout from Covid-19 and introduced economic support packages worth Dh388 billion ($105.6bn), Minister of Economy Abdulla bin Touq said in December.

More than 345 million vaccines have been administered in 121 countries at a daily rate of 8.74 million doses, according to Bloomberg's vaccine tracker. The UAE was in third place on Saturday – after Israel and the Seychelles – with a daily rate of 60.1 shots administered for every 100 people.

ADCB expects the recovery of the country's services sector to become more evident in the second half, particularly in the final quarter, owing to more widespread global vaccinations, Expo Dubai 2020 and more favourable weather.

International travel demand is set to improve as people travel from the UAE to tourist destinations, the bank said. However, business travel is expected to lag behind.

A recovery in the “external-facing” services and an increase in the country's population are poised to boost other areas such as retail.

The UAE’s trade and logistics sector is on track to benefit from stronger demand for physical goods in the first half.

Online shopping growth, strong Asian export volumes and lockdown restrictions introduced this year in Europe could lead to “buoyant East-West trade momentum” in the first quarter, ADCB said.

Personal protective equipment demand, global vaccine campaigns and the extension of accommodative economic policies are expected to support the trade and logistics sector.

In terms of domestic economic activity, ADCB expects a “modestly expansionary” fiscal stance this year that is supported by the recovery in oil prices.

The lender forecast that the deficit will narrow to 1.1 per cent of gross domestic product as higher oil revenue offsets an increase in expenditure.

Crude benchmarks Brent and West Texas Intermediate are about 30 per cent higher than they were when the year began.

Employment is set to increase gradually in sectors such as aviation and hospitality as business activity recovers, the report said.

However, jobs lost across various sectors of the economy are unlikely to return soon as companies have become more efficient, cut costs and hastened digitisation.

Important tourism source markets such as the UK and Saudi Arabia are not expected to ease their international travel restrictions until mid-2021, which may delay the sector's recovery during the summer.

The aviation industry could improve at a quicker pace than the local hospitality sector as tourists from the UAE and the wider region travel over the summer.

However, tourism is on track to make significant strides in September as the country prepares for the Expo in October, the report said.

This should also drive demand for short-term rental contracts from the end of this year into 2022, the report said.

Looking forward, ADCB said project and investment activity will be largely driven by the oil, rail transport and utility sectors.

Its outlook for Abu Dhabi remains strong, due to the emirate's multi-year hydrocarbon investment plan.

The UAE economy is poised to grow by 2.5 per cent this year and by 3.6 per cent in 2021, according to the UAE Central Bank.