UAE Economic Outlook2020 - 2025

December - 2019

Dr. El Hassan JouaouineSenior Advisor for International Economic Relations

Content

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Part 1: Introduction

Part 2: UAE Macroeconomic Structure

Part 3: Baseline Scenario

Part 4: Policy options under consideration to reignite Economic Growth

Copyright © 2019

Ministry of Economy – Headquarters in Abu Dhabi

P.O. Box: 901, Abu Dhabi, U.A.E.

Tel: + 971 2 6131111

Email: info@economy.ae

Website: www.economy.ae

Introduction

• Over the last 4 years since 2016, the UAE economy is deploying all the efforts to return andsustain the 3.3% long term average real GDP growth rate over the period (2010-2018).

• The slowdown in the economic activity can be attributed mainly to fall in international oil pricessince 2014, which has impacted the UAE domestic final demand.

• In addition, the slowdown in the global economic activity and the significant fall in world tradehas amplified the impact on the UAE economy.

• Other factors that have challenged the UAE economy include among other, the regional securityissues and the trade war between the US and China, these are all significant for theramifications on the UAE economy.

• To support the UAE economic activity over the next 5 years, this presentation, will present theUAE economic outlook over the next six years from 2020 to 2025 and the policy options thatare being considered to reignite UAE economic growth.

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UAE Macroeconomic Structure

Real GDP share by sector – 2018

Source: FCSA

6

Real GDP (2018): AED1.44 trillion

Real GDP Growth (2018): 1.7%

Real non-oil Growth (2018) : 1.3%

30.0%

11.6%

8.5%8.5%

8.5%

5.9%

5.5%

5.4%

3.0%

2.8%2.5%

2.3%

Oil and Gas

Logistics

Manufacturing

Construction

Wholesale and retail Trade

Public Utilities

Public Admin

Real Estate

Financial Sector

ICT

Prof. Activities

Hospitality

UAE Real GDP Growth (annual % change) (2010-2018)

GDP, Non-oil (real growth %)

Source: UAEMM

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GDP, Macro (real growth %) GDP, Oil (real growth %)

Baseline Scenario

UAE Macroeconomic Model Exogenous Variables over 2020-2025

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Source: UAEMM based on IMF, EIA,EIU data

Exogenous variables

Historical average

annual growth

rate

2010 / 2019

Assumed average

annual growth rate

2020 / 2025

Real World Demand for Exports excl. re-exports and oil 0.9% 2%

Real World Demand for Re-exports 0.1% 1.8%

Real Oil Exports -3.8% 1.5%

Price – Exports excl. re-exports and oil 3.7% 1.6%

Price – Re-exports 4.9% 1.6%

Price – Oil Exports 4.2% -0.2%

Price – Imports -0.1% 1.1%

Long term Interest rate (% point) 0.6% 0.7%

Short term interest rate (% point) 1.2% 2.0%

Money supply 1.4% 1.9%

UAE annual real GDP growth (%, 2020-2025)

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Source: UAEMM

1.12.1

1.6 1.8

1.8 1.9

1.9

0.8

2.5

1.31.8

1.9 2.0

1.9

-3

-2

-1

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Total GDP, (real growth %) GDP, Non-oil (real growth %)

GDP % share by Sector (% average growth rate)- 2010-2019 vs.2020-2025

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Real GDP

Real Non-Oil GDP

Manufacturing

Transport etc.

Construction

Commerce etc.

R. Estate, Bus. Serv.

Other tertiary serv.Primary sector

Public Utilities

Average 2020/2025

Average 2010/2019

Source: UAEMM

UAE Economy Potential Capacity

Economic Capacity Utilization (ratio, 2010-2025)

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Source: UAEMM

Actual to potential GDP, macro Actual to potential GDP, non-oil

Ra

tio

Productivity

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نمو اإلنتاجيةنسبة-االقتصاد الكلينمو اإلنتاجيةنسبة-القطاع غير النفطي

Source: UAEMM

Total Economy – Productivity growth rate Non-Oil Economy – Productivity growth rate

Capital Productivity Labor ProductivityTFP Macro economy

Capital Productivity Labor ProductivityTFP Non-Oil economy

Average 2020/2025 Average 2020/2025 Average 2010/2019Average 2010/2019

UAE annual real GDP growth (%, 2020-2025): High and Low baseline scenarios

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0.07

4.07

4.42

3.66

5.00

2.89

1.01

1.64

1.12

2.502.33

2.45 2.472.70

2.82

0.07

4.07

4.42

3.66

5.00

2.89

1.01

1.64

1.12

2.06

1.621.78 1.80

1.92 1.92

0.07

4.07

4.42

3.66

5.00

2.89

1.01

1.64

1.12

1.62

0.931.11 1.13 1.14

1.03

-1

0

1

2

3

4

5

6

2010 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

GDP, main baseline scenario GDP, Low baseline scenarioGDP, high baseline scenario

Source: UAEMM

Policy Options under considerationto reignite Economic Growth

Reignite UAE Economic Growth

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− To boost the UAE medium term economic outlook , the UAE Cabinet is currently conducting an assessment of the effects of the suggested policies on the UAE economy at macroeconomic and sectoral levels, which have been simulated using the UAE Macroeconomic Model (UAEMM).

− These policy measures fall into two categories, namely

− the classical Keynesian demand side policies to stimulate GDP growth mainly through additional government spending and;

− the other set of economic policy measures that address issues related to efficiency and productivity improvement and referred to as structural economic policies.

− This part will be limited to shed light on the general policy framework suggested to support the UAE economic recovery, without delving into the details of the simulation of the suggested policies.

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1. Additional Government Spending

2. Additional Technical Progress (Increase of Total factor Productivity)

3. Easier Financing (Lowering User Cost of Capital)

4. Lower Indirect Taxes (such as Licensing and Custom Clearance fees …)

5. Deepening GCC Free Trade Agreements

6. Improved Returns from UAE Foreign Investments (Annual transfer of fixed amount from SWF).

General policy framework

Further Hands-on Initiatives

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1. Easing cash-flow pressure (Exhorting banks to increase their lending and Credit exposure activities to Private sector rather than Government Related Entities – GRE’s; Looking into establishing a body that guarantees bank loans to small businesses …)

2. Reducing the cost of doing business ( Reducing fees of government services; government support to reduce utility bills for domestic manufacturers; reducing port clearing and container handling charges…)

3. Supporting demand ( widen the scale of countries benefiting from the visa on arrival scheme; setting up an financial advisory unit to assist struggling customers in restructuring their debts; establish a ceiling for credit cards rates; to encourage the “Rent-to-Own” program by developing a legal and regulatory structure to give it more legitimacy and attractiveness …)

4. Enhancing economic coordination and complementarity between the Emirates (consider applying the concept of specialization, similar to the US experience; enhancing coordination between Free Zones Authorities ).

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This type of measures is characterized by flexibility and direct applicability