UAE economy shows strong growth in Q1

The UAE’s economy expanded by 8.2% y/y in Q1 2022, according to the latest estimates from the Central Bank of the UAE. The economy was led by higher oil production, with hydrocarbon GDP up by 13% y/y as the UAE expanded oil output in line with its OPEC+ targets. The non-oil sector, however, grew by a strong 6% y/y as the country benefitted from a global easing of travel restrictions related to Covid-19 and the impact of Expo 2020. The central bank estimates total GDP growth of 5.4% in 2022 thanks to an 8% increase in the hydrocarbon GDP and a 4.3% increase in non-oil activity.

The central bank didn’t provide a detailed breakdown of the contribution by sector for growth in Q1 but noted a “positive outlook” for the wholesale and retail trade sector, the largest non-oil sector of the economy in 2021. The bank did highlight real estate as well as tourism and hospitality as having been contributors to the growth in the broader economy in Q1.

The central bank also published inflation data for the whole of the country, with an estimate that prices rose by 3.4% y/y in Q1 compared with 2.3% in the last quarter of 2021. Transport costs rose 22% y/y in Q1 while food prices rose 5.4% and restaurants/hotels were up almost 7%. The bank cautioned that higher fuel prices will pass through to other sectors of the economy while higher wages and rents would also put inflation higher. The central bank estimates annual inflation of 5.6% this year, a marked acceleration on the kind of price growth the UAE has seen over the last several years.

Our projection for GDP growth this year is slightly faster than the central bank’s estimates with growth of 5.7% in 2022 and a similar pace in 2023. Our expectation is that oil production will continue to increase as the OPEC+ agreement opens up for higher targets and the country invests more into upstream capacity, for both oil and natural gas. On inflation, our current target is for annual average inflation of 4.3% on the back of an easing in some imported prices in the second half of the year before inflation moves lower to 2.5% in 2023.