A reduction in oil output as a result of OPEC-agreed production limits, a slowdown in the non-oil sector due to increased interest rates, and weak foreign demand are some of the major challenges facing the UAE’s prospects for economic growth in 2023. Global Data predicts that the UAE’s real GDP will rise at a lesser rate of 3% in 2023 compared to the strong 7.6% growth rate seen in 2022.
The oil and gas sector contributes over 30% of the UAE’s GDP and 13% of all exports, according to GlobalData’s most recent research, “Macroeconomic Outlook Report: UAE.” The year 2022 saw a major economic recovery, fueled mostly by rising oil prices, with a growth rate of 7.6%, the highest since 2007.
However, the UAE’s prospects for the current year’s economic growth are directly impacted by the fall in oil and gas prices that has been occurring since the start of 2023 and is predicted to continue throughout the year.
Economic research analyst at GlobalData Indrajit Banerjee makes the following observation: “The government must continue to pursue its goal of diversifying the economy if it wants to reduce the economy’s sensitivity to outside shocks. The UAE Circular Economy Policy 2031, with an emphasis on manufacturing, food, green infrastructure, and sustainable transportation, as well as Abu Dhabi’s plan to invest US$2.7 billion to double the population of the manufacturing sector by 2031, reflect the government’s desire to shift to a more diversified economic base.
The industries that contributed the most to the gross value added (GVA) in 2022 were mining, manufacturing, and utilities, which made up 31.2% of the total. Next came financial intermediation, real estate, and business activities, which made up 22% of the GVA, and the wholesale, retail, and hotel sectors, which made up 15%. GlobalData predicts that these three industries will expand nominally by 2.9%, 3.7%, and 2.5%, respectively, in 2023 as opposed to 9.6%, 12.4%, and 8.4% in 2022.
With an investment of US$23 billion in July 2022, the UAE has started a number of development projects that will open up employment possibilities and greatly increase the construction and related industries. The building of Dubai’s urban tech center and the AED40 billion (US$11 billion) railway network project are only a couple of the ongoing initiatives,
the Rashid Solar Park’s capacity being increased by 2025. The construction activities, which GlobalData predicts will increase by an average of 2% between 2023 and 2025, are anticipated to be driven by these projects.
Export growth is anticipated to drop from 4% in 2022 to 2.6% in 2023 on the international front. Real household consumption spending is anticipated to increase domestically at a slower rate of 4% in 2023 compared to 8.4% in 2022.
In the GlobalData Country Risk Index (GCRI Q4 2022) of 153 countries, the UAE is categorized as a very low risk country and is rated 10th overall. In comparison to other countries, the country has a lower risk score in terms of the macroeconomic, social, and environmental risk criteria, as compared to average of middle east and north African nations.
In 2021, the UAE will hold 4% of the world’s natural gas reserves and 7.2% of the oil reserves, according to a GlobalData study based on statistics from the OPEC database. ADNOC found 650 million bbl of onshore crude oil reserves in Abu Dhabi in May 2022, which was a huge discovery. The hydrocarbon reserves base in the UAE has grown as a result of this discovery. As a result, it is anticipated that the nation will continue to play a significant role as an important producer and exporter of hydrocarbons in the near future.
The UAE’s economic growth projection for 2023 confronts hurdles, but continuous diversification efforts and development initiatives targeted at bolstering the economy will play a crucial role in lessening its sensitivity to outside shocks, according to Banerjee.