UAE - Mubasher: The UAE economy is expected to contract by about 6% in 2020 due to the coronavirus (COVID-19) outbreak and the sharp decline in oil prices in the first half (H1) of 2020, according to Euler Hermes, a provider of trade credit insurance and other related financial services.
Euler Hermes referred that before the COVID-19 pandemic, Dubai's economy was facing some challenges due to overcapacities in the hotel sector and falling real estate prices, posing challenges to the emirate financial stability and construction sector.
Amid the current global crisis, the external demand for UAE exports will plunge and the non-oil GDP will be affected by the lockdown as the tourism sector will be hit hard in 2020.
Moreover, the renewed cuts in oil production under the OPEC+ agreement will put pressure on the oil sector.
However, the UAE economy is forecast to see a modest recovery in 2021 with a 1.5% growth, boosted by EXPO 2020 Dubai, which is set to be held from 1 October 2021 to 31 March 2022.
"Overall, it perhaps will take several years for real GDP to return to pre-crisis levels. In the private sector, the risk of non-payment is expected to rise," the report by Euler Hermes referred.
Meanwhile, the rise in fiscal spending during 2020 due to economic stimulus measures, expectations over lower oil prices, and the crisis-driven decline in nominal GDP will lead to a large fiscal deficit of around -9% of GDP this year.
The large fiscal deficit will be followed by another shortfall of around -5% in 2021 amid a modest recovery.
"However, financing of these deficits will be no problem thanks to the huge assets held in sovereign wealth funds. Total public debt (including domestic debt of government-related entities) is forecast to rise from 52% of GDP in 2019 to around 65% in 2021," the trade credit insurance provider referred.
"But again, this relatively high ratio as compared to peers is not a reason for serious concern, as the UAE is in a solid net creditor position, thanks to public foreign assets of around $900 billion (including SWFs), which are more than 200% of GDP."
