UAE Macroeconomic Overview
We are beginning to see the extent of the impact the pandemic has had on the UAE’s economy, with headline GDP contracting by 5.2% in the year to Q2 2020.
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Recent data released by the Central Bank of the UAE is beginning to show the extent of the impact the pandemic has had on the UAE’s economy, with headline GDP contracting by 5.2% in the year to Q2 2020. Over the same period, non-oil GDP decreased by 4.5%. With containment and lockdown measures being largely lifted after this period, the outlook for Q3 2020 GDP is much more positive.
The UAE’s Purchasing Managers’ Index (PMI), which tracks the country’s private non-oil economy and is a timelier economic indicator, has shown the economy has begun to see increased levels of activity. The index, where a reading below 50 indicates a contraction in economic activity, averaged a reading of 50.4 in Q3 2020, up from the average reading of 47.1 in Q2 2020. The latest monthly reading in September 2020 of 51.0, the highest in 11 months, also indicates that economic activity is starting its gradual return to prepandemic levels.
Looking ahead, forecasts from Oxford Economics show that the UAE’s GDP is expected to contract by 7.8% in 2020. Over this period, as economic activity contracts, employment in the UAE is expected to contract by 7.3%. In Abu Dhabi and Dubai, GDP and employment are expected to contract by 7.2% and 5.4% and 7.4% and 9.1% respectively.
The UAE’s transportation, storage, IT and communications sector is expected to see the most significant decline in employment levels, where employment is expected to contract by 13.3% in 2020. Over the same period, the consumer services and industry sectors will also see significant contractions in employment of 10.2% and 8.6% respectively. Employment in the financial and business services sector is expected to decline marginally by 2.2% in 2020.
In 2021, the UAE’s GDP and employment are expected to record growth rates of 4.5% and 6.0% respectively.
Residential sales prices in Abu Dhabi fell on average by 5.6% in the year to Q3 2020. Over this period, average prices for apartments in the capital fell by 6.0% and average villa prices fell by 3.8%. Both apartments and villas recorded quarter-onquarter price increases of 0.8% and 3.4% in the quarter to Q3 2020, a trend not seen since early 2014. As at September 2020, the average price per square metre in Abu Dhabi for apartments and villas stood at AED 10,595 and AED 8,439 respectively.
In Abu Dhabi’s residential rental market, rents softened by 4.1% in the 12-months to September 2020. Over this period, rents for apartments fell by 4.9% whereas the decline in rents for villas was relatively muted at 1.3%. Whilst the rate of declines have moderated since the start of the year, we are likely to see this trend reverse over the course of 2020 as employment contracts in the capital and demand begins to weaken.
As at September 2020, gross yields in Abu Dhabi’s mainstream market registered on average at 6.8%, up from 6.6% a year earlier.
Materialisation of supply in Abu Dhabi has been relatively low in 2020, with an estimated 2,022 units being delivered to date, less than a quarter of the initial scheduled supply estimate tabled at the start of the year. In the last quarter of 2020, circa 3,300 units are scheduled to be delivered. However, given the weak materialisation rate in 2020, we expect this figure to be significantly lower, as handovers get pushed out into 2021.
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