Today's Edition
Mostafa Abdelazim (ABU DHABI)
The UAE’s non-oil real GDP will record 5.7% growth in 2023, which would rank the country fifth among the fastest-growing large economies in the world (whose GDP is more than $500 billion), according to the Institute of International Finance (IIF).
In an exclusive interview with Aletihad, Dr. Garbis Iradian, Chief Economist for MENA at the IIF, said, “Overall real GDP (which also includes oil GDP), then the total real GDP growth for the UAE would be 3.8% in 2023 and 4.6% in 2024, driven by private consumption and public investment on the expenditure side, and services (particularly tourism and retail sales) on the production side”.
The Washington DC-based institute ranked the UAE 30th out of the world’s 40 largest economies with GDP worth over $500 billion) in 2022. The UAE’s nominal GDP for 2022 is estimated at $504 billion (equivalent to Dh1.85 trillion) and is projected to increase to $534 billion (Dh1.96 trillion) for first time ever by 2024.
“I expect overall real GDP growth to moderate from an estimate of 7.2% in 2022 to 3.8% in 2023, dragged down by lower oil production in the context of OPEC+ agreement to cut crude oil production. However, nonhydrocarbon real GDP growth, which is a better indicator of economic activity, will remain robust at 5.7% in 2023 driven by private consumption and public investment on the expenditure side, and services on the production side,” he said.
According to Chief Economist of IIF MENA, the average inflation rate will moderate from 4.8% in 2022 to 3.1% in 2023, helped by lower global commodity prices and lower global inflation.
“I am encouraged by the continued strong structural reforms (including digitalisation and further investment in infrastructure) in the context of the UAE 2050 strategies. Such reforms will boost trade and attract more foreign investment. This will help the UAE economy make further progress in diversification away from oil and foster a smooth energy transition,” Iradian said.
According to latest IIF forecast of the UAE economy, assuming that Brent crude oil prices average $83 per barrel in 2023, the current account surplus of UAE is poised to moderate from $69 billion in 2022 (13% of GDP) to $46 billion this year, accounting for 9% of GDP, and the fiscal balance will maintain its sizeable surpluses, accounting for 7% of GDP in 2023 and 2024.
Despite lower average oil prices (Brent crude oil declining from an average of $99.6/barrel in 2022 to $83/barrel in 2023) the current account and fiscal balances will remain in large surpluses, he noted.
Commenting on the banking sector, Iradian noted that banking soundness indicators have strengthened, including adequate liquidity, high capital adequacy ratio, higher net foreign assets, and lower nonperforming loans.
“The UAE authorities have set clear goals for encouraging diversified and knowledge-based growth to achieve a competitive knowledge-driven economy and are implementing a broad range of policies to achieve their goals”, Iradian said.
“Such reforms will increase productivity growth and boost the supply of highly qualified labour, which is needed to raise potential growth,” he added.
Major FDI destination
According to an IIF forecast, the UAE is expected to attract $39 billion in foreign capital inflows in 2023 with foreign direct investments (FDI) at $24 billion, accounting for more than 60% of total nonresident capital inflows.
“The UAE is considered one of the world’s most attractive foreign investment destinations and remains the region’s largest FDI recipient, with inflows of $24 billion in 2023 (4.7% of GDP, one of the highest among emerging and developing economies). Large FDI in the UAE is driven by a friendly business environment, excellent infrastructure, predictable policies, and structural changes aimed at diversifying the economy and creating a dynamic and expanded private sector”, the Chief Economist of IIF MENA said.
“Investment in sectors relevant to the Sustainable Development Goals (SDGs) is rising, driven by renewable energy projects, and the authorities in the UAE are encouraging green finance and investment in sustainable projects as part of their efforts to diversify their economies away from hydrocarbons” he added.
Foreign direct investment into the UAE is estimated to have risen to a record $23 billion in 2022, as the Arab world’s second-largest economy rose six places to become the 16th-largest FDI recipient in the world.
With a 10% year-on-year increase in investment inflows, the UAE was the top FDI destination in the six-member economic bloc of the GCC, accounting for 61% of total investments in the region, according to the latest “World Investment Report 2023” issued by the UN Conference on Trade and Development.
The country received 997 greenfield projects representing an 84% annual increase, which made it the fourth-largest recipient of projects globally after the U.S., the U.K., and India.
FDI outflows also rose by 10% to $25 billion in 2022, making the country the 15th-largest investor in the world, up from 20th in 2021, according to the UNCTAD report.
