UAE: Economy contracts in Q1 2020 on non-oil sector downturn
June 30, 2020
According to preliminary data released by the Central Bank of UAE (CBUAE), GDP fell 1.0% in year-on-year terms in the first quarter, down considerably from the previous quarter’s 0.8% expansion. The Q1 reading is the first quarterly contraction since December 2017 and the strongest downturn on record.
While corroborating data from the UAE’s Federal Competitiveness and Statistics Authority (FCSA) is yet to be released, the Central Bank’s figures point to a sharp contraction in the non-hydrocarbon sector as the key driver behind the downturn. The sector shrank 3.0% year-on-year in Q1 (Q4 2019: +4.4% year-on-year) as widespread lockdown conditions enacted in March paralyzed the service and tourism sectors.
Meanwhile, the hydrocarbon sector moderated the downturn, with growth rebounding to 3.7% in Q1 (Q4 2019: -7.0% yoy), although boosted oil production in March following the breakdown of OPEC+ production cut agreements and ensuing price war between Saudi Arabia and Russia may have contributed significantly to the upturn.
The Central Bank provided estimates for the current year, projecting the economy to contract 3.6% in annual terms. Continued pandemic-related restrictions are likely to stem the flow of tourists throughout the year, contributing to an estimated 4.1% fall in non-oil sector GDP, while adherence to the latest round of OPEC+ production cuts amid slack external demand for key commodity exports means the Bank estimates oil sector GDP to fall 2.4% in 2020.
Author: Stephen Vogado, Economist