Sheik Mohamed Bin Zayed is the new ruler of the federation of United Arab Emirates. We do not expect any major shift in economic policy.
The economy of the United Arab Emirates is the strongest in the Gulf. It benefits from a solid oil rent in Abu Dhabi and from the dynamism of a diversified economy in Dubai, notably in tourism, real estate and transportation sectors.
In the short term, the economic outlook is very favourable after several difficult years given the drop in oil prices and the consequences of the pandemic on the service sector. In 2022, economic growth should reach 6% thanks to rising oil production, the rebound in tourism activity and the recovery in the real estate sector. Inflation will rise but should remain moderate (at around 3.5% on average) notably thanks to the peg of the dihram on the USD, which is currently appreciating against all major currencies.
In the medium term, the ongoing process of reform will reinforce the solidity of public finance. Federal tax revenue will rise, notably with the introduction of a tax on corporate profits, and the monetization of public-sector assets should continue. It will contribute to lower fiscal vulnerability to oil prices.
Nevertheless, there are some vulnerabilities, notably the reliance on oil income, which should last in the medium term, and the financial situation of the government related entities, which are exposed to real-estate and service sectors. The economic outlook of those sectors is positive, but the debt of the government related entities remains a source of vulnerability in a context of global monetary tightening.
