The United Arab Emirates’ (UAE) economic growth prospects for 2023 face obstacles, including a decline in oil output resulting from OPEC-agreed production cuts, a slowdown in the non-oil sector due to higher interest rates, and subdued external demand.

The real GDP of the UAE is forecast to expand at a slower pace of 3 per cent in 2023, compared to the robust growth rate of 7.6 per cent observed in 2022, according to GlobalData.

GlobalData’s Macroeconomic Outlook Report: UAE report reveals that with around 30 per cent of the country’s GDP and 13 per cent of total exports, oil and gas industry plays a crucial role in the UAE’s economy.

The year 2022 witnessed a significant economic upturn, with a growth rate of 7.6 per cent, the highest since 2007, primarily fuelled by surging oil and gas prices. However, the decline in oil and gas prices since the beginning of 2023, expected to persist throughout the year, directly impacts the UAE’s economic growth prospects for the current year.

Indrajit Banerjee, Economic Research Analyst at GlobalData, comments, “To make the economy less vulnerable to external shocks, it remains crucial for the government to persist in its endeavour to diversify the economy. Abu Dhabi’s plan to invest $2.7 billion to double the size of the manufacturing sector by 2031, and the adoption UAE Circular Economy Policy 2031 that focuses on manufacturing, food, green infrastructure, and sustainable transport, reflects the government’s urge to transform to a more diversified economic base.”

Mining, manufacturing, and utilities activities contributed 31.2 per cent to the gross value added (GVA) in 2022. In nominal terms, this sector is forecast to grow by 2.9 per cent, in 2023 as compared to 9.6 per cent in 2022.

According to GlobalData analysis based on information from the OPEC database, the UAE holds 7.2 per cent of the oil reserves and 4 per cent of the natural gas reserves in the world in 2021.

In May 2022, the Abu Dhabi National Oil Company (ADNOC) made a significant discovery in Abu Dhabi, uncovering 650 million barrels of onshore crude oil reserves. This discovery has further augmented the UAE’s hydrocarbon reserves base. As a result, the country is expected to maintain its prominent position as a major producer and exporter of hydrocarbons in the foreseeable future.

Banerjee concludes: “Even though the UAE’s economic growth outlook for 2023 faces challenges, the ongoing diversification efforts and development projects aimed at strengthening the economy will play a vital role in reducing its vulnerability to external shocks.”