The UAE is on pace to reach the 4.2 per cent growth projected for 2022, despite growing inflationary pressures. It expects real GDP to grow by 2.3 per cent in 2021, up from a previous projection of 2.1 per cent, said the latest quarterly economic assessment of the UAE Central Bank.
CBUAE retained its real GDP growth predictions for 2022 at 4.2 per cent, with non-oil real GDP growing at 3.9 per cent and real oil GDP growing at 5%, respectively. The central bank ascribed the robust economic rebound to efficient coronavirus control, considerable gains in oil prices, and enhanced oil output. In Q4-2021, oil output climbed by 9.3% year over year.
“High oil and gas prices benefited the UAE’s external position and budget income,” the CBUAE noted, “while rising transportation costs and putting pressure on domestic inflation.” In Q4-2021, the UAE’s total non-oil exports climbed by 29% yearly, while imports increased by 26.6 per cent.
According to the central bank, key non-oil sectors of the economy, such as travel, tourism, hospitality, real estate, and telecommunications, are all on the mend.
Inflationary forces are present:
According to the most recent assessment, the economy is experiencing increased inflationary pressures, mostly being transferred from rising global prices. In the fourth quarter of 2021, consumer price inflation (CPI) surged, hitting 2.3 per cent year on year on average, up from 0.6 per cent in the third quarter. “The increase in import prices was largely influenced by global inflation pass-through, but was tempered by the appreciation of the US dollar and, as a result, the dirham,” the central bank analysis noted.
The major drivers of price increases would be increased energy prices; imported inflation, which is likely to hit new world highs; growing wages; and the continuation of the rent-decline trend. “As a result of the war in Ukraine, there are major upside risks, including probable disruption in energy markets and supply chains, as well as increased food prices,” the central bank stated.
The transportation category’s price increased by 17% as a result of the increase in oil prices. According to the bank, average CPI inflation in 2022 would be approximately 2.7 per cent, down from 3.3 per cent in Q1-2022.
The effect of the exchange rate:
Despite the rise in worldwide inflation, the UAE central bank noted that global inflation is being passed through slowly in the UAE due to the growing nominal effective exchange rate (NEER) of the dirham as the value of the dollar rises. The NEER, which takes into consideration the bilateral
The UAE’s trade partners’ exchange rates increased by 1.6 per cent in the fourth quarter of 2021, following a 1.1 per cent increase in the third quarter, following the dollar’s trajectory.
The increasing effective exchange rate of the dirham against a basket of currencies representing the UAE’s key import destinations reduces the transmission of global inflation to the local market substantially.
Gains in employment
According to a recent central bank estimate, the country’s employment development is gaining speed. Due to increasing corporate and state investment, domestic employment grew by 3.1 per cent in December 2021. According to CBUAE’s Wage Protection System (WPS) data, the average income grew by 7.8 per cent.
