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The UAE’s economy expanded by 1.5% in 2017, driven by a 2.9% growth in the non-oil sector, according to the UAE Central Bank annual report released today.
The non-hydrocarbon sector’s resiliency was supported by employment expansion, higher government spending and improved growth in the main UAE’s trading partners.
However, the Real Oil-GDP declined by 1.5 on account of the OPEC-oil production cut agreement to which the UAE has committed. Annual inflation reached 1.8% in 2017, the same rate as in 2016, primarily driven by the rebound of Tradables prices: Tobacco and Beverages prices jumped by 18.3% on account of the excise tax implemented in October and Transportation Price inflation (5.4%). Employment expanded by 2.6% y-o-y in the first nine months of 2017. Fiscal expansion continued in the first nine months of 2017, increasing government spending by 23% y-o-y.
After a dramatic decline of oil prices in 2014 and the subsequent declining trend where the Brent price hit less than $30 for the first time since February 2004, oil prices started their recovery in 2017. Oil prices declined by 47% in 2015, followed by a trough of 17% in 2016 which weighed heavily on the UAE’s hydrocarbon revenues and resulted in adverse shock to the UAE’s terms of Trade. Effective January 2107, following an OPEC agreement that stipulates a coordinated oil-production-cut among its members and other Non-OPEC countries, the Brent price climbed by 24% in 2017 to end-up the year around $70 per barrel.
The oil production-cut was clearly reflected in the Real Oil GDP growth in 2017. According to the estimation of the CBUAE, Real Oil GDP shrank by 1.5% in 2017 against a previous expansion by 3.8% in 2016. The improvement of oil prices has supported the recovery of the UAE’s economy, as evident by an improved sentiment that was transmitted to the improved growth of non-oil activity. In addition, the diversification of the UAE’s economy has been a strong pillar to weather the adverse implications of continued fluctuations of the oil price. Indeed, the non-oil sector showed a remarkable resiliency, relative to comparators; it has sustained a stable growth pattern since the decline of the oil price in 2014.
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