Regional Analysis 2021

MENA 2021

United Arab Emirates economic and construction review

Economic performance 

The Central Bank of UAE estimated real GDP to have fallen by 5.8% in 2020, following a challenging year, with the real non-hydrocarbon GDP expected to have declined by 5.7%. Q4 2020 saw recovery in non-oil sectors, as lockdowns eased and travel resumed, while the vaccine roll-out began. Heavily reliant on the oil economy, the near-decade low in production in Q3 2020 has served an additional blow to the UAE.  

In Q4, the drop in PMI (Purchasing Managers’ Index) compared to Q4 2019 was reduced to only -0.9% and returned to the expansion zone of 51.2 in December. This improved sentiment is being attributed to the preparation for the Dubai Expo. 

The UAE has embarked on a number of economic policy innovations, including full foreign ownership of companies in the base economy, Dubai’s remote worker visa, and an expansion of the ten-year term visa program to include doctorate and medical degree holders, engineers and technologists. It announced in August 2020 that it will deliver a three-stage 'flexible package', aiming at strengthening the economy by supporting the labour market and encouraging investment.  

Consumer price inflation remained negative in the fourth quarter, which is largely attributable to a 3.5% decline in the price of non-tradables, while prices in tradables’ recorded modest growth of 0.1%.  

Similar to many other countries, stimulus and support packages have been put in place to somewhat offset the impact of the pandemic, with the Targeted Economic Support Scheme (TESS) extended until June 2021, covering loan repayment deferrals and other regulatory relief measures. The Government deficit reached 9.9% of GDP in 2020, up from 0.8% in 2019, according to the IMF. The public debt is low, but has rapidly increased in just a few years, going from 20.9% of GDP in 2018 to 36.9% in 2020. 

Construction market performance 

Performance has declined in 2020, with output thought to have contracted by circa. 4.8% for the year – a weaker result than was previously expected. It is estimated that construction employment in 2020 fell by approx. 5%. The tender price index has declined by an estimated 2% over the year.  

Residential real estate prices declined in 2020, although this slowed significantly in Q4, according to the Central Bank, with prices in Abu Dhabi registering monthly gains in H2 2020. 

Infrastructure will play a fundamental role in the UAE’s expansion plans, and this is providing a boost to the market as the Government pushes forward with its various initiatives and projects, including the Dubai 2040 urban development plan, Energy Strategy 2050, the Sheikh Zayed Housing Programme and the Dubai Tourism Strategy. The region overall has considerable infrastructure requirements for efficient transport and logistics networks, in addition to reducing its reliance on oil and the oil economy, by focusing on sustainable supplies of cleaner energy. The energy sector will also benefit from the agreement between UAE and Israel, to unlock considerable investment opportunities.  

Looking ahead 

The October World Economic Outlook forecast 1.3% GDP growth for the UAE in 2021 and 2.2% in 2022, while Oxford Economics is projecting 1.1% growth and 4.0% respectively. A divergence in GDP growth rates between Abu Dhabi and Dubai in 2021 is expected according to a recent Knight Frank report, with growth rates of 1.6% and 5.4% anticipated respectively, before converging to 5.3% and 5.0% in 2022. 

The biggest test for growth will be Q4 2021, as all eyes turn to Dubai for Expo 2020. Gulf countries will continue to be the world’s primary producers of oil and natural gas for the foreseeable future (as evidenced by Abu Dhabi’s US$122 billion oil and gas capital expenditure budget for 2021-2025). We also expect further solar power project awards, as Dubai executes its ‘Clean Energy Strategy’, which aims to achieve 75% renewable energy production by 2050. 

The construction industry is expected to rebound in 2021, with growth of 3% forecast. Then, between 2022 and 2025, average annual growth of 3.8% is anticipated. Meanwhile, construction employment is projected to increase by 2% in 2021. The tender price index is expected to increase by approx. 1.5% in 2021, which would bring it back to similar levels as the 2019 index. 

Contributor: Oliver Keegan

 

UAE - value of construction output

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UAE - employment in construction

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UAE - tender price index

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Linesight average UAE construction costs

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