21 July 2022
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UAE economy expands

By Edward Bell

  • The UAE’s economy expanded by 8.2% y/y in Q1 2022, according to the latest estimates from the Central Bank of the UAE. The economy was led by higher oil production, with hydrocarbon GDP up by 13% y/y as the UAE expanded oil output in line with its OPEC+ targets. The non-oil sector, however, grew by a strong 6% y/y as the country benefitted from a global easing of travel restrictions related to Covid-19 and the impact of Expo 2020. The central bank estimates total GDP growth of 5.4% in 2022 before a slowdown to 4.2% next year. Our expectation for GDP growth this year is 5.7% thanks to higher oil output.
  • The central bank also published inflation data for the whole of the country, with an estimate that prices rose by 3.4% y/y in Q1 compared with 2.3% in the last quarter of 2021. Higher transport costs, up 22% y/y in Q1, along with services inflation were the main contributors to faster price growth in the first three months of the year. The central bank estimates annual inflation of 5.6% this year, a marked acceleration on the kind of price growth the UAE has seen over the last several years. We had estimated inflation at an average of 3.3% in the first quarter of this year and average annual inflation of 4.3% this year.
  • UK CPI came in slightly higher than expected for June, accelerating to 9.4% y/y from 9.1% the previous month and beating market expectations of 9.3%. On a monthly basis CPI inflation rose by 0.8%, up from 0.7%. Core CPI, removing food and energy prices came in at 5.8%, just below the previous figure of 5.9% recorded the month prior, meeting market consensus. Housing, household and transport costs remain the primary drivers of gains in inflation overall, with transport up by 2.4% last month whilst food & beverages and the hospitality sector were both up by 1.2%. Following on from Bank of England Governor Andrew Bailey’s comments that a 50bps hike would be under consideration at the August MPS, the hot inflation print for June affirms our view that the BoE will hike by 50bps in August and likely will do so again in September.
  • Inflation in South Africa rose by 7.4% in June, roughly in line with market expectations and a marked acceleration from a month earlier. Like many economies globally, high energy and food prices accounted for the bulk of the faster pace of price gains with transport costs rising by 20% y/y and food costs up 9%. The South Africa Reserve Bank will set policy later today with a 50bps hike expected. The SARB has already hiked by 75bps since the start of the year and the high inflation print, along with expectations that the Federal Reserve could also move by a large amount later this month, may tip the bank to an even larger hike than 50bps.
  • Canada’s CPI inflation rose by 8.1% y/y in June and was up 0.7% m/m. While still the highest level since 1983, the June inflation reading came in slower than market expectations on both the annual and monthly level. The Bank of Canada has front-loaded its fight against inflation, hiking policy rates by 100bps at their last policy meeting in the middle of July. The BoC will likely remain vigilant in fighting against inflation though the relative soft print in June will provide some near-term assurance that tightening policy is working.
  • US existing home sales fell for a fifth month in a row, hitting their lowest level in the past two years. Total sales fell by 5.4% in June to 5.12m, well below market expectations. The housing market in the US is showing considerable signs of slowing down with homebuilding activity slowing as mortgage rates have moved higher on the back of higher rates from the Federal Reserve.

Today’s Economic Data and Events

  • 15:00 TU One week repo rate: forecast 14%
  • 16:15 EC ECB Deposit facility rate: forecast -0.25%
  • 16:30 US Initial jobless claims July 16: forecast 240k
  • JP Bank of Japan policy balance rate: forecast -0.1%
  • ZA SARB interest rate: forecast 5.25%

Fixed Income

  • US Treasuries displayed some choppy price action with nearly a 10bps move top to bottom in the 2yr UST. After moving richer early in the day, USTs sold off during the US session despite no material catalyst. The 2yr UST yield closed the day 1bps lower at 3.2272% while the 10yr closed little changed at 3.0265%.
  • European bond closed mixed a day ahead of today’s ECB decision. Yields on the 10yr bund fell about 2bps to 1.25% while peripheral bonds moved lower. Yields on Italian 10yr yields rose by 6bps to 3.374% as political instability in the country compounds uncertainty about the terms of the ECB’s antifragmentation tool.
  • South African 10yr bonds rallied ahead of today’s SARB decision as markets estimate that inflation in the country has peaked. Yields on the 10yr dipped by 16bps to 11.348%. Turkish bonds also rallied with yields on 10yr bonds closing at 16.82%, down more than 100bps ahead of today’s CBRT meeting.
  • Moody’s cut their sovereign rating on Sharjah to ‘Ba1’, below investment grade. Moody’s said that Sharjah needed to provide “a credible fiscal adjustment plan” amid rapid growth in debt stock.


  • The dollar reversed some of its recent losses overnight with gains in the broad DXY index. EURUSD came off by 0.46% to 1.018 with markets likely to be on edge ahead of the ECB later today. Anything less than a forthright conviction in tightening policy could see EURUSD at risk of further sell-offs. GBPUSD fell by 0.18% to 1.1973 as the Conservative Party in the UK has selected two candidates to replace Boris Johnson: Rishi Sunak, the former chancellor, and Liz Truss, the foreign minister.
  • In commodity currencies, USDCAD moved higher, up by 0.1% to 1.2884, while AUDUSD fell by 0.13% to 0.6888. NZDUSD managed to buck the trend of weaker commodity currencies with a gain of 0.2% to 0.6239.


  • US equity markets closed higher overnight with the Dow Jones up by 0.15% and the S&P gaining 0.6%. The NASDAQ managed a strong gain of 1.6%. European markets settled weaker with the FTSE down by 0.4% and the EuroStoxx 50 settling with a weaker bias.
  • Asian markets have opened on a softer footing in early trade today with the Nikkei down by 0.3% and the Hang Seng falling as much as 0.9%.


  • Oil prices closed lower overnight even as there have been few material catalysts to push prices weaker. Brent futures settled at USD 106.92/b, down 0.4% while WTI was off by 1.9% at USD 102.26/b and has moved below USD 100/b in early trade today.
  • Commercial oil inventories in the US were relatively unchanged last week though the steady draw in strategic reserves brought total crude stocks down by 5.4m bbl. Gasoline stockpiles were higher by about 3.5m bbl last week while distillate inventories drew by 1.3m bbl. Oil production in US fell by 100k b/d to 11.9m b/d while product supplied was relatively buoyant, up by 2.3m bbl.

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Written By

Edward Bell Head of Market Economics

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