UAE 2023 Economic Growth is Forecasted at 3% Driven by Diverse Sectors and Thriving Tourism

The UAE economy is poised for growth, with forecasts indicating a 3% expansion in 2023 and a robust 4% growth in 2024. This positive outlook is primarily attributed to the non-oil sector, which is set to capitalize on the flourishing tourism industry, government-driven initiatives, and advancements in technology, as per assessments by S&P.

Analysts from the credit rating agency underlined the UAE government’s strategic efforts in implementing a wide-ranging series of economic and social industries in recent years. These initiatives have been thoughtfully designed to lay the foundation for enduring and sustained economic growth.

Furthermore, S&P analysts project ongoing growth in the UAE’s thriving tourism sector. The nation’s capacity to host major global events is anticipated to be a key driver in realizing the ambitious objective of attracting 40 million visitors by 2030. Concurrently, plans are in place to expand the inventory of hotel rooms to 250,000 within the same timeframe.

Analysts also hold the expectation that the UAE banking sector will maintain its robust performance, with profitability surpassing pre-pandemic levels, thanks to the upward trajectory of interest rates. Additionally, in the Dubai real estate sector, a higher degree of flexibility is anticipated, with housing prices remaining stable due to sustained demand.

Trevor Cullinan, an analyst specializing in sovereign ratings at S&P, has outlined positive growth prospects for the UAE’s economy. He anticipates a 3% growth rate in 2023, primarily propelled by the non-oil sector. Furthermore, Cullinan envisions a 4% growth rate in 2024, with contributions from both the oil and non-oil segments of the economy.

Cullinan emphasized the pivotal drivers behind the country’s economic expansion, which encompass key sectors such as oil and gas, wholesale trade, industry, real estate, construction, financial services, and tourism.

He anticipates that the non-oil segment will receive a substantial boost from an influx of expatriates and tourists, coupled with optimistic sentiments among investors, consumers, and the private sector. These developments align with the “We Are the Emirates 2031” vision, which is aimed at augmenting trade volume and increasing the tourism sector’s share of the GDP. This vision hinges on collaborative efforts between government bodies, institutions, and the private sector to drive the nation’s development process forward.

Cullinan highlighted the UAE government’s recent implementation of an extensive array of economic and societal initiatives. These strategic measures are anticipated to serve as catalysts for sustained and enduring UAE 2023 economic growth. Key initiatives encompass –

  1. Foreign Ownership – Enabling 100% direct foreign ownership across over 1,000 commercial and industrial activities, fostering an environment conducive to international investment.
  1. Insolvency Law – Introduction of an insolvency law that offers individuals facing financial challenges an opportunity to restructure their debts and access favorable borrowing terms, promoting financial stability.
  1. Ease of Doing Business – Enhancing the UAE’s global competitiveness by streamlining processes and regulations, thereby improving the ease of conducting business.
  1. Visa Programs – Launch innovative visa programs, including the Golden Residence Visa, Green Residence Visa, and multiple-entry tourist visas, designed to attract skilled professionals and tourists, bolstering the UAE’s economic landscape.

Cullinan emphasized that the UAE’s recent efforts to establish a yield curve in the local currency, the UAE dirham, via the introduction of treasury bonds and instruments, will play a pivotal role in advancing the development of domestic capital markets. This, in turn, will broaden the avenues of financing available to companies and banks operating in the UAE.

Furthermore, he underscored the significance of the UAE’s adoption of a corporate tax system. This strategic move is expected to achieve two critical objectives: firstly, diversifying government revenues away from the oil sector, and secondly, modernizing the overall business landscape in the UAE. These measures collectively reflect the nation’s commitment to fiscal sustainability and a business-friendly environment.

Tatiana Lysenko, Lead Economist for Emerging Markets at S&P, anticipates that the UAE’s burgeoning tourism sector will be a key driver of robust economic growth. Notably, the Emirate of Dubai’s remarkable achievement of attracting 14.7 million international visitors in 2022, doubling the figures from 2021, signals a potential return to pre-pandemic peaks in 2023, with expectations of reaching 16.7 million visitors, akin to the numbers recorded in 2019. The Emirate of Abu Dhabi also displayed significant growth, with 4.1 million hotel guests in 2022, marking a 24% increase from the preceding year.

Leskova envisions sustained growth in the UAE’s tourism sector, propelled by the hosting of prominent events like the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28). This trajectory aligns with the UAE’s ambitious target of welcoming 40 million visitors by 2030, alongside plans to expand the inventory of hotel rooms to 250,000 during the same period.

Moreover, Leskova anticipates that the emirates of Abu Dhabi and Dubai will remain at the forefront of attracting both business and tourism, while other emirates such as Ras Al Khaimah and Sharjah are actively promoting their unique tourism offerings. This diversification enriches the country’s tourism landscape, with Sharjah highlighting Arab and Islamic culture as a family-friendly destination, and Ras Al Khaimah renowned for its picturesque natural beauty, entertainment options, and authentic cultural showcases.

Tatiana Leskova envisions increased flexibility within Dubai’s real estate sector, with housing prices expected to find stability amid robust demand. She highlights Dubai’s continued allure for businesses, exemplified by a notable uptick in the issuance of new commercial licenses.

Meanwhile, Mohamed Damak, Senior Director and Global Head of Islamic Finance at S&P affirms the enduring strength of the UAE’s banking sector. He anticipates a boost in profitability, surpassing pre-pandemic levels, propelled by the ascent of interest rates and technological advancements. Damak also expresses confidence in the robust capitalization of the UAE’s banking system, underpinned by enhanced internal capital generation, favorable financing, and liquidity conditions, and a robust net external assets position, fortifying it against the challenges of dwindling global liquidity and escalating costs.

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