The Institute of International Finance said that the UAE economy is preparing for a leap in growth this year after a sharp contraction in the country’s economy in the midst of the Corona pandemic, noting that the widespread distribution of the vaccine and the recovery of oil prices are all factors that will accelerate the pace of growth during the current year.
The institute added in a research note, reviewed by Al Arabiya, that the UAE has generally succeeded in overcoming the consequences of the pandemic on the health level, with the preventive measures taken by the country and the decline in the average age of the population, which enables the country to overcome the consequences of the pandemic at the health level.
The research note noted that the strong health system and the preventive measures taken by the country allowed the economy to open and the tourism movement to recover quickly during the last months of last year, as the rate of recovery in hotel reservations in the country reached about 70% by the end of the fourth quarter of last year.
The Institute of International Finance expects that the UAE economy will grow by about 2.3% this year after last year’s contraction, which is expected by about 5.7% due to the consequences of the pandemic, which has cast a shadow over all sectors of the economy in the country.
The institute said, “The recovery this year will come supported by a partial recovery in domestic demand and a jump in exports . Our expectations indicate the ability of the UAE to contain the epidemic and also price levels for oil prices on average around $ 52 a barrel.”
“The external conditions are still in good condition, with the current account balance achieving surpluses and foreign assets amounting to about $ 845 billion, which equates to about 220% of the country’s GDP,” the memo added.
The Institute of International Finance believes that the oil sector caused a contraction of growth last year, with production falling by about 10% last year, as a result of the OPEC + agreement to reduce production, which came in order to restore balance to the global oil markets.
The institute expects the non-oil economy to grow by about 3% this year and next, after shrinking by about 5% last year in the midst of the pandemic.
In the tourism sector, the institute expects that travel to the country will increase by about 40% this year after the sharp decline last year amid the closures measures taken by governments around the world to confront the consequences of the pandemic.
Inflation trends
The Institute of International Finance notes that the decline in housing prices has put pressure on inflation rates, with the consumer price index contracting by about 2% on average over the past year for the second year in a row.
“The sharp declines in inflation rates can be clearly seen in the deep contraction of non-oil domestic product, and the decline in demand for housing units and the increase in supply of them in Dubai and Abu Dhabi,” the memo added.
The institute expects that inflation rates will recover during the year running in the positive range, reaching about 1.1% on average, after two years of deflation supported by the recovery of domestic demand and an improvement in the global economy.
An expansionary fiscal policy
The Institute of International Finance advises the UAE government to pursue expansionary fiscal policies, which would stimulate growth.
“The UAE should adopt an expansionary fiscal policy in 2021, given the strong financial stocks that the country enjoys, which would allow, with the recovery of oil prices, to avoid risks related to growth,” the institute said in its note.
The institute expects that the budget deficit amounted to about 7.3% last year, compared to about 1.2% only in 2019, at a time when federal public debt rates reached about 37% of GDP.
