UAE’s non-oil sector has likely ‘bottomed out’ – BofAML

The UAE’s non-oil sector is expected to turn a corner in 2019 amid a series of reforms intended to boost the economy, according to Bank of America Merrill Lynch (BofAML).

The lender said Expo 2020 projects, a boost to corporate profits linked to a revised worker insurance scheme, a Dhs50bn ($13.61bn) fiscal stimulus plan announced by Abu Dhabi and the expansion of Abu Dhabi National Oil Company’s downstream operations could add 1 percentage point to real non-oil GDP next year.

Read: Abu Dhabi crown prince approves Dhs50bn in economic stimulus

Read: UAE announces new visa rules for residents, jobseekers and tourists

“Over the medium term, we expect UAE non-hydrocarbon real GDP growth to increase to c3.5 per cnet, from 2.8 per cent in 2018F and 1.9 per cent in 2017,” the bank said.

Real GDP growth is expected to hit 1.9 per cent this year from 0.5 per cent in 2017.

The costs of stimulus plans – including cuts to fees in hospitality, aviation and other sectors – on Dubai are expected to be modest, with a maximum fiscal cost of $1.2bn (1 per cent of GDP) assuming Dubai Municipality’s entire revenues are market rate revenues, BofAML added.

Read: Dubai to cut municipality fees at hotels, restaurants

While for Abu Dhabi they are deemed financeable, at 2 per cent of GDP, due to higher oil prices.

More broadly, the reforms are expected to support medium-term non-oil growth by helping the country retain and attract white collar talent.

In particular, changes to visa and foreign ownership rules may improve foreign direct investment, population growth, private consumption and real estate demand, according to the bank.

Read: UAE Cabinet approves 10-year visas, will allow 100% foreign ownership by year-end

However, competitiveness gains from Dubai’s fee waivers “are likely to be modest in light of generally high costs”, it added.

The lender speculated the stimulus plans came in part due to the slow pace of economic activity last year with private consumption likely contracting 1.3 per cent.

Dubai’s real GDP growth is expected to receive a 0.5 percentage point boost in 2018 and 2019 and 2 percentage point boost in 2020 and 2021 from hosting Expo 2020 and associated higher job creation, consumption and tourists flows.

Meanwhile, Abu Dhabi’s $13.61bn stimulus plan could give a 0.4 percentage point boost to non-oil GDP, according to BofAML estimates.