In late June Dubai Statistics Centre published first-quarter 2022 real GDP data for the emirate, indicating year-on-year growth of 5.9% in January-March. A combination of the impact of high international oil prices on regional liquidity, the reopening of international travel following the coronavirus pandemic and initiatives aimed at bolstering the private sector and promoting foreign investment will continue to support strong economic growth in the UAE.

Why does it matter?

We expect the business sector to continue to grow in 2022-23, despite rising input costs and other global headwinds. The Dubai economy has been growing at a rate of about 6.3% since mid-2021, when domestic covid‑19 pandemic restrictions began to be lifted. However, the Dubai  economy returned to its pre‑pandemic size only towards the end of the first quarter of 2022. Dubai’s service-led economy was especially badly hit at the height of the pandemic, shrinking by 11.8% in 2020 compared with 4.8% for the UAE as a whole. The federal and emirate-level authorities launched supportive monetary and fiscal policies during the pandemic, and oil‑related GDP—the single largest contributor to Abu Dhabi’s GDP—also contracted more modestly than overall GDP. These supportive policies and effective pandemic management, including rapid vaccination, have helped to bolster the recovery in key sectors, including travel and construction in Dubai. 

Although the economic fallout from the Russia-Ukraine war is dampening global demand, this also presents opportunities for the UAE, given the resultant surge in international oil prices. The UAE has not imposed sanctions on Russia, which has made it an attractive business and leisure base for Russians who can no longer access Europe and the US. We expect international oil prices to stay high, averaging more than US$100/barrel in 2022‑23, and oil production and exports are expected to increase sharply in 2022‑23 as OPEC+ quota restrictions are lifted and the UAE continues to invest heavily in increasing capacity. These developments in the oil sector will in turn drive higher government consumption that will help to mitigate domestic cost-of-living concerns. In June both the federal authorities and Dubai’s government announced additional current spending packages aimed at supporting residents. The increased regional liquidity will help to sustain business opportunities and investment in sectors including real estate, leisure and retail.

What next?

Overall economic growth is likely to stay strong for the remainder of 2022 and 2023, averaging more than 5% a year, given ongoing pressure to raise oil output to cover losses from Russia, as well as the strength of regional liquidity. However, the slowdown in global economic growth is likely to dampen the pace of recovery from 2023, especially if higher oil prices are not sustained.

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