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What perspectives for the United Arab Emirates after COVID-19?

What perspectives for the United Arab Emirates after COVID-19?

The UAE’s economy was hit by a double shock in 2020. The first was related to the collapse in oil prices following the disagreement between Russia and Saudi Arabia in March 2020, the second being the COVID-19 pandemic. According to preliminary estimates, the UAE’s economy shrank by 6.1% in 2020. However, growth the outlook is brighter for 2021, as Coface expects growth to stand at 3.1% this year thanks to a fast vaccination campaign in the UAE, a sharp recovery of the global economy and the rebound in energy prices.

Nevertheless, the extent of the recovery will vary across sectors. We expect performance in tourism, construction and retail to be closely in step with new variants of the virus. Expo 2020, scheduled to start in October 2021 after a year of postponement, will attract tourism inflows into the country. However, pre COVID-19 tourism performance is not expected to return immediately and will depend on the health situation locally and in originating countries. The return of tourists and expatriates to the UAE, due to their hub status, will largely determine the recovery in construction and real estate, however, remote working and shopping could be a drag. Through tourism, COVID-19 will also be determinant for the retail sector, one of the most diversified and developed in the region. However, sales are supported by pent-up demand as consumers postponed their big-ticket purchases during the pandemic.

Oil and transport will benefit from the sharp global and regional economic recovery, as well as that of trade. In July 2021, the UAE agreed with the OPEC+ group to increase their baseline oil production reference. Despite challenges, the outlook remains positive for the UAE oil sector, in line with some investment projects aiming at expanding the country’s production capacity. The position of the UAE as the regional trade hub will support their transport sector.

Under these circumstances, the normalization of relations between the UAE and Israel will be profitable for both sides in terms of trade and investments across a variety of sectors. On the other hand, some unexpected tensions may arise with Saudi Arabia, a long-time ally of the UAE, over competition for the regional hub status. However, these are expected to remain limited to the economic sphere.

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