MUFG: UAE GDP Shrinks in Q1

The UAE’s economy contracted by -0.3% year-on-year (y/y) in the first quarter (Q1) of 2020 – the first annualized contraction since Q4 2017, a report said. The non-oil sector declined by -1.9% y/y, offset by a rise of 3.3% y/y in the oil sector, primarily as oil production increased by robust 14.3% month-on-month (m/m) in March, said Mitsubishi UFJ Financial Group (MUFG), a Japanese bank holding and financial services company, in its latest Mena Economic Weekly.

As with economies across the world, Q2 2020 will mark the trough of the contraction, given the economy was shut-down for much of April and only partially reopened in May, which was exacerbated by oil sector as oil prices collapsed and oil production was down -8.8% q/q in Q2 owing to the historic OPEC+ output agreement, the report said.

“We expect Q3 2020 to be the quarter of economic stabilization and gradual recovery, especially given the firming in oil prices, a revival in high frequency mobility indicators as well as the reopening of borders in Dubai on 7 July for international tourism,” MUFG said in the report. “Meanwhile, Q4 2020 should witness the recovery pickup further with strengthening optimism surrounding COVID-19 vaccine probabilities (we believe such prospects are underpriced and underappreciated at the current juncture).

“On net, we see the UAE’s economy contracting -4.8% in 2020, though next year’s recovery will be robust at 3.9% as external demand recovers and global oil markets will continue to convalesce. Our forecasts for the UAE are above consensus though we are cognizant of downside risks, particularly if the recent firming in oil prices reverses, job losses accelerate the outflow of expatriates and/or there is a rise in insolvencies,” it added.