UAE double digit surplus to continue until 2025

Wam

• High oil prices boost figures
• Goods trade surplus to rise
• Non-oil foreign trade up 14%

The UAE’s current account surplus will narrow this year but remain in double figures until 2025, analysts predict.

It will be boosted by stronger than expected growth in non-oil exports, re-exports and tourism in the first six months of the year.

The surplus will slip from nearly 15 percent last year. But experts have raised their 2023 forecast from 10 percent earlier this year to 11 percent of GDP.

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BMI, formerly Fitch Solutions, said they expect growth in non-oil and services exports and re-exports to remain “robust” over the medium term.

The surplus is set to remain in double figures until 2025, helped by higher oil prices combined with rebounding production.

Abu Dhabi on Monday announced its non-oil economy grew by more than 12 percent in the second quarter compared to the year-earlier period, contributing to a 3.5 percent increase in the total GDP.

The UAE’s non-oil foreign trade reached a record AED1.2 trillion ($327 billion) in the first six months of 2023, up 14 percent compared to the same period in 2022.

The figures were buoyed by non-oil exports, which reached AED205 billion. This was a 12 percent rise while re-exports increased by 10 percent to AED341 billion. Imports jumped nearly 18 percent to AED693 billion.

China retained its position as the UAE’s leading global trading partner, followed by India, the US and Saudi Arabia.

Turkey, with whom the UAE signed a comprehensive economic partnership agreement in March, came in fifth place. Iraq, Switzerland, Japan, Hong Kong and Russia completed the top 10. 

Major player

Sheikh Mohammed bin Rashid Al Maktoum, vice president, prime minister and Ruler of Dubai, said the UAE will remain a “major player in international trade”.

BMI said the decline of the surplus in 2023 will be due mainly to a decline in hydrocarbon exports, which make up 20 percent of total exports. Reduced hydrocarbon production and lower oil prices added to the fall. 

However, the UAE’s external surplus will remain in double-digits for the third consecutive year and firmly above the 2015-19 average of 7.6 percent of GDP. 

“We expect that non-oil exports and re-exports will continue to rise in the second half of 2023 as a result of the surprising resilience of economic growth in main trading partners such as the US,” analysts said in a research note.

“In addition, we expect that the increase in the passenger and cargo capacity of Abu Dhabi International Airport from early November 2023 will support growth in exports and re-exports.”

Better than expected tourism activity in the first half of the year also prompted analysts to slightly increase their forecast for the services surplus from 4.1 percent of GDP to 4.3 percent. 

Official data showed that the number of international visitors to Dubai surpassed pre-pandemic levels. The number of hotel guests also grew by 34 percent year on year in Abu Dhabi. 

BMI’s forecast for the services surplus still marks a narrowing from 4.7 percent of GDP in 2022, however.

Growth in tourist arrivals is expected to be around 10 percent in 2023. This is much slower than the 35 percent increase registered in 2022 when the sector was bouncing back from the pandemic.

Despite narrowing in 2023, the UAE’s current account surplus is expected to remain in double digits until 2025. 

A slowdown in tourist arrivals growth will cause the services surplus to shrink to 2.4 percent of GDP in 2025.

But higher oil prices combined with rebounding production is likely to boost oil exports. That could lead to the UAE’s goods trade surplus jumping to 21 percent of GDP, analysts said.

BMI expect oil prices to increase from an average of $80 per barrel in 2023 to $83 in 2024 and 2025. They forecast that crude oil production will increase by 0.4 percent in 2024 and 5.1 percent in 2025.