UAE and GCC countries rebound after COVID-19 global pandemic economic setback
The Coronavirus pandemic had literally come and conquered the world in ways that we had never thought of. Lockdowns, social distancing, vaccination, work from home had become the norm of the day in these times. The loss of life and money is immense but slowly and steadily the world is turning around. Though the threat is far from over what with new strains popping up every other day, several countries are taking measures to recover their economy. So it is no wonder that a highly development oriented country like UAE along with certain other GCC countries like Saudi Arabia are doing the same.
As per Institute of International Finance of Washington, UAE and Saudi Arabia are leading the rebounding pack. At the rate at which the economy is recovering, it is projected to accelerate even more in 2022.
The recovery is expected as there are chances that oil prices will hike up after production cuts previously agreed upon by OPEC+ are reduced which is estimated to happen around the middle of 2022. Projected growth in GCC region based on oil is 5% in 2022. Even if this does not happen UAE and Saudi Arabia are focusing on increasing their growth in non-oil related GDP rate.
1.7% growth in 2021 and about 4.2% growth in 2022 is expected in the whole of GCC.
UAE:
In 2020, higher food and transportation costs have caused an inflation in UAE of about 1.1%. According to Garbis Iradian, Chief Economist of Mena of Institute of International Finance, UAE economy stands in a good stage now because of rising oil prices, the super high rate of vaccination and various other structural reforms undertaken by the government. Focusing on GDP from non-fuel commodity market is also increasing the scope of economic recovery. This helps UAE focus on the private sector which is recovering fast.
Saudi Arabia:
In 2021, the average inflation was over 3% in Saudi Arabia. The GDP growth in 2020 in Saudi Arabia was -4.1%. In 2021 it is at 1.9% and the GDP growth is expected to increase to 4.6% in 2022. This fast recuperation of economy is being made possible because of increase in oil price, anticipated lowering of oil production cuts, non-oil based commodity price hike and increased VAT rates.
The GCC countries are focusing on actions to ensure strong fiscal consolidations:
- Oman, Qatar and Saudi Arabia are cutting down on their expenditure by prioritizing only essential expenditures.
- Oman and Saudi Arabia are bringing in tax reforms which will increase income from non-hydrocarbon markets.
- UAE, Saudi Arabia, Qatar and Oman are estimated to recover well and find a strong footing even if oil prices reduce after 2021.
- UAE, Saudi Arabia and Qatar has public foreign assets that allow them to afford expenses on social sectors thus uplifting the economy.
- Bahrain needs to catch up and bring in more reforms and adjustments in order to survive the market crash and ensure faster economic recovery.
Central Banks are supporting with their policies:
- Till 2022 the central banks are expected to hold on to their status-quo in terms of their policies so that their currencies stay pegged to the US dollar.
- All businesses, especially SMEs, are getting big support from the banks as they have increased lending and also deferring payments on existing loans. There is also improvement in their liquidity support measures.
The inflation rate because of this global pandemic is different in different countries. While UAE has seen an average inflation of -0.2%, Saudi Arabia had faced about 3.1%. However, it is anticipated that after all the measures taken by GCC countries, the aggregate fiscal deficit should go from 8.5%GDP in 2020 to 1% in 2021.
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