Unprecedented fiscal stimulus and monetary policy support, the IMF estimates that global growth contracted by -4.5 per cent in 2020, making it the worst recession since World War II. The only major economy that likely saw positive GDP growth last year is China, and even there the estimated growth of 1.9 per cent would be the slowest in more than 40 years. UAE, like other GCC countries, faced a double whammy of sharply lower than expected oil revenue in 2020 in addition to the impact of the coronavirus on the non-oil sectors. Wider budget deficits limited the scope for additional fiscal stimulus in most of the GCC, but official data shows that the UAE increased spending on wages, subsidies and investment last year, helping to mitigate some of the economic impact of the pandemic. The UAE central bank also provided additional liquidity to the banking system, which in turn allowed banks to provide relief for borrowers affected by the pandemic.
Emirates NBD estimates the UAE economy contracted by -6.9 per cent in 2020 as both oil and non-oil sector GDP declined in real terms. Oil production cuts were necessary as global lockdowns in the second quarter of 2020 led to a collapse in the global demand for oil. Transport, logistics, retail and hospitality sectors were among the most affected by the pandemic as borders were closed and the volume of global trade declined by an estimated 10 per cent last year. International tourism was also severely impacted by border closures and other restrictions on movement in the second quarter of 2020 and the sector has been slow to recover. One silver lining for the UAE’s travel and tourism sector was the signing of the Abraham Accords normalising relations with Israel in September 2020, which opened up a new market. The growth in visitor numbers from Israel in the last month of 2020 helped to offset lower visitor numbers from some of the UAE’s more traditional source markets. The improvement in the global growth outlook together with a weaker US dollar, record low interest rates and firmer oil prices should support the domestic recovery. Expo 2020, which was postponed to October 2021, should help to boost tourism in the latter part of this year. Overall, we expect the non-oil sectors to grow 3.5 per cent this year, although headline GDP growth will be slower at 1.9 per cent.