UAE economy to grow 2.5% in 2021, Central Bank says

Non-oil sector expected to perform better in the fourth quarter of 2020 and expand 3.6% next year

The UAE's economy is projected to recover to 2.5% in 2021, with non-oil GDP growing 3.6%, according to the central bank. Chris Whiteoak / The National

The UAE's economy is projected to grow 2.5 per cent in 2021, as the recovery from a pandemic-induced slowdown this year continues, according to the Central Bank of the UAE.

The rebound of the Arab world's second largest economy in 2021 will be led by a 3.6 per cent expansion in the non-oil sector, the central bank said in third quarter economic review on December 22.

"Real non-oil GDP growth is expected to be driven by increasing fiscal spending, pick up in credit and employment, relative stabilisation of the real estate market, boosted by recovery in confidence and the Dubai Expo 2021," the central bank said. Given production cutbacks taken by the Opec+ alliance, oil GDP is expected to remain "flat," it said.

The UAE has taken measures to support businesses and citizens to ease the fallout from the Covid-19 pandemic. The total value of economic support packages and initiatives provided by the federal and local governments since the onset of the pandemic has reached more than Dh388bn.

The Covid-19 pandemic has thrust the global economy into the deepest recession since the Great Depression of the 1930s. In October, the International Monetary Fund revised its forecast for the world economy upward to a contraction of 4.4 per cent, compared to its earlier projection of a 4.9 per cent decline in June.

The US economy is expected to shrink 4.3 per cent in 2020, growth in Germany, Europe’s largest and the world’s fourth-biggest economy, is now expected to shrink by 6 per cent, while the eurozone will contract an average by 8.3 per cent. The UK, the world's sixth largest economy, will shrink 9.8 per cent this year.

The UAE which is rolling out Covid-19 vaccines at the moment and is the Middle East's business and transportation hub, is expected to rebound after a projected contraction of about 6 per cent in 2020, caused by the impact of the Covid-19 pandemic and lower oil prices, the central bank said.

In terms of the UAE's real estate market, Dubai's residential property prices declined on average 0.9 per cent year-on-year in the third quarter of 2020, the central bank said, citing data from the Dubai Land Department. Rents in the emirate continued their downward trend, decreasing 6.9 per cent year-on-year in the third quarter, it said.

In Abu Dhabi, residential property prices fell 5.5 per cent year-on-year in the third quarter but increased 0.9 per cent from the same quarter a year ago, the central bank said. Rents in the capital declined 3.9 per cent year-on-year in the third quarter, after a 4.9 per cent drop in the previous quarter.

In terms of remittances, outbound personal transfers declined by 7.7 per cent or Dh3.3 billion in the third quarter of 2020, compared to the same period in 2019. India, Pakistan and Egypt were the top destination countries for personal remittances from the UAE.

Banks in the UAE saw deposits rise in the third quarter of 2020 driven by an increase in government and private sector deposits, while gross credit grew.

"Overall, the financial soundness indicators remained healthy during this period, which is testament to the positive impact of the [Central Bank']'s enhanced Targeted Economic Support Scheme (TESS) and the gradual recovery of the economy," the regulator said.

Banks’ lending to micro, small and medium enterprises remained "mostly stable" in the third quarter, up 3.4 per cent compared to the end of 2019.