UAE: Faster growth and higher inflation in 2022

Khatija Haque - Head of Research & Chief Economist
Published Date: 25 April 2022


The UAE economy grew 3.8% in 2021 according to HH Sheikh Mohammed bin Rashid al Maktoum, prime minister of the UAE and ruler of Dubai. While detailed data is not yet available, preliminary estimates show Abu Dhabi’s GDP grew 1.9% last year as a modest contraction in the oil & gas sector offset non-oil sector growth of 4.1%.  The recovery was most evident in the manufacturing and wholesale & retail trade sectors as Covid-19 restrictions were eased. The Dubai Statistics Centre has yet to release full year 2021 GDP data but based on the figures for Abu Dhabi and the whole UAE, we estimate Dubai’s economy grew around 6.5% in 2021.  We estimate non-oil GDP in 2021 for the whole UAE grew 5.3% in 2021.  


Source: Haver Analytics, Emirates NBD Research

The UAE economy has had a strong start to 2022, with crude oil production up 12% y/y in the first quarter of this year. Survey data points to a solid expansion in non-oil sectors as well, with strong growth in business activity and new work in the UAE.

For Dubai in particular, Expo 2020 helped to boost activity over its duration, and the relaxation of travel restrictions has contributed to a strong recovery in the tourism and hospitality sector over the same period.  International visitor numbers have recovered to around 70% of pre-pandemic levels in the first couple of months of this year. Hotel occupancy bounced back after slipping in January as a result of the Omicron variant of Covid-19, and reached 91.6% in March according to consultancy STR – a record high for March. Hotels have also been able to double their revenue per available room in the first quarter of 2022, compared with the same period a year earlier.

With the reopening of markets such as Australia, New Zealand and Singapore, we are optimistic that the recovery in international tourism will continue over the course of the year, underpinning growth in the UAE’s transport and hospitality sectors. The FIFA World Cup in Qatar later this year will likely also benefit the travel hubs in the UAE.

Dubai hotel occupancy and RevPAR

Source: STR, Emirates NBD Research

Inflation to erode purchasing power this year

Overall, the outlook for the UAE remains constructive. However, there are headwinds to growth, not least from inflation.  Consumers in the UAE are likely to see their purchasing power eroded by rising prices.  Following Russia’s invasion of Ukraine and the subsequent sanctions and disruptions to exports from that region, we revised up our forecast for UAE CPI to average 4.3% in 2022 from 2.3% previously.  Inflation in 2021 averaged just 0.2% in 2021.  The upgrade takes into account the pass-through from higher global oil and food prices as well as higher housing costs, particularly in Dubai.

Retail petrol prices have increased by two-thirds over the last year as they have been adjusted in line with higher global oil prices. Emirates NBD expects Brent oil to average USD 112/b in 2022, so fuel prices are likely to remain high through the rest of this year, raising costs for many businesses that will have to pay more to transport goods to and within the UAE. Higher food prices – the UAE imports 90% of its food requirements - are also likely to leave less money available for households to spend on more discretionary items.

Rising interest rates are another headwind to domestic demand growth

In addition to higher prices, consumers will have to adapt to a higher interest rate environment, which will raise the cost of mortgage and other loan repayments.  With Fed officials now talking about raising the Fed Funds rate to 2.5% by the end of this year from 0.5% currently, the increase in borrowing costs will be significant. As a result, while we still expect the non-oil sectors of the economy to grow in 2022, the rate of growth will probably be slower than it was in 2021. We have pencilled in 4.0% non-oil growth this year.

Budget surplus to widen in 2022

Preliminary data from the ministry of finance showed the UAE recorded a larger than expected surplus of AED 68.7bn in 2021, or 4.5% of GDP.  Revenue grew 30% y/y while current expenditure rose just 10% on 2020 levels. Moreover, capital (investment) spending in 2021 was just half the level recorded in 2020, so total expenditure growth was a modest 2.8% y/y.  

We expect the government to increase total spending by around 10% in 2022. Non-oil revenues are expected to rise as the economy rebounds and oil revenue will benefit both from increased oil production and a higher price per barrel of oil. As a result, we expect the consolidated UAE budget to record a surplus of around 8% of GDP in 2022.

UAE budget balance and Brent oil price

Source: Ministry of Finance, Emirates NBD Research