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Economic rebound is uneven, uncertainties remain

Khatija Haque - Head of Research & Chief Economist
Published Date: 09 May 2021


Developed markets lead the recovery

Global GDP is expected to rebound strongly this year, with the IMF forecasting 6% growth following a contraction of -3.3% in 2020, although the recovery will be uneven and uncertainty remains high.  Those countries – mainly developed markets – which have been able to procure and rollout Covid-19 vaccines relatively quickly, and where there has been significant fiscal and monetary policy support, are likely to recover faster than many emerging markets, where access to vaccines is more limited and distribution relatively slow. The emergence of new variants of the coronavirus is yet another source of uncertainty with regards to the global, and regional, economic outlook.

Nevertheless, recent data from the US, UK and Europe point to a strengthening recovery in those markets, while China’s economy is forecast to expand by 8.5% this year.  In the GCC too we expect the non-oil sectors to rebound this year, although the growth rate is likely to be slower than in the larger developed markets, where there has been much greater fiscal stimulus over the last year.   

The UAE's economy contracted by less than expected in 2020 

The UAE’s economy contracted by -6.1% in 2020 according to preliminary estimates, with the non-oil sectors’ GDP declining by -6.2%.  Unsurprisingly, the travel and tourism sector was the hardest hit last year, with accommodation and food services GDP down -23.6% y/y and the transport and logistics sector contracting -15.5% y/y.  While the surge in coronavirus cases in India and other emerging markets will likely continue to weigh on tourism in the coming months, we are already seeing growth in the volume of global trade, which should support a rebound in the UAE’s key transport and logistics sector this year. 

Growth in the volume of world trade

Source: Bloomberg, Emirates NBD Research

Manufacturing has also held up well through 2020, and recent announcements of increased government investment and structural reforms to accelerate growth in this segment of the economy bode well for growth over the medium term. 

Speed of vaccine rollout stands UAE in good stead in 2021

The speed with which the UAE has rolled out Covid-19 vaccines also stands it in good stead to benefit from the global economic recovery.  We expect the UAE to benefit from increased international visitor numbers as travel restrictions in other countries are lifted, and the new more flexible visa regulations has made it easier for remote workers to base themselves here. 

Share of people vaccinated against Covid-19 as at 7 May 2021

Source: Our World in Data

The availability of vaccines and limited restrictions on normal activity in the UAE has also attracted increased foreign investment in the real estate sector in the first quarter of this year, as much of the rest of the world entered stricter lockdowns.  The central bank’s decision last year to increase loan-to-value limits for residential mortgages has helped boost demand, as has the shift towards working and learning remotely, which has increased demand for larger residential units in particular.  Lower interest rates and a limited supply of larger properties have also contributed to the stabilization in residential real estate prices in Dubai after several years of decline.     

PMI surveys suggest that the UAE’s non-oil sectors are seeing a recovery in business activity and domestic demand, albeit at a modest rate.  Furthermore, higher commodities prices and freight costs are pushing up input costs and squeezing margins.  As a result, we have yet to see growth in private sector employment, as firms prioritise keeping costs down. 

We expect the UAE’s recovery to gain momentum in H2 2021, as international restrictions on travel are eased and the global economy continues to rebound.  Monetary policy in the US will remain highly accommodative for some time, and the government is expected to push through even more fiscal stimulus over the course of this year, underpinning the global economic recovery.  We expect the UAE’s non-oil sectors to grow 3.5% in 2021.