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The economic impact of the COVID-19 pandemic will be gigantic and felt widely, BUT unevenly.
The UAE was an early mover in terms of getting ahead of the virus: the entire education system was re-set by bringing forward the spring break holidays by two weeks (banning international travel for all students) and mandating remote learning for all institutions as of 22/03/20.
More & more day-to-day practices have been proscribed & limited, but there is not yet a blanket work from home / social distancing requirement (guidelines only). As a modern country with a small population and a young demographic profile, the UAE is likely to cope with the pandemic, particularly now that international travel has been almost entirely shut down.
As of 21st March, there had been 153 confirmed cases in the country with two reported fatalities.
The restrictions on international travel will, however, hurt the local economy. Approximately 12% of the UAE’s GPD comes from travel & tourism and related / supporting activities and it is unlikely this will be compensated by the mitigating rise in local spend & activity from residents unable to travel out.
At the same time, the recent oil price collapse deprives the UAE of its primary generator of export dollars and the medium-term outlook for an over-supplied and weak energy market could well put pressure on spending plans and force a retrenchment on certain projects.
That said, a bounce back in the East – and there appears to be glimmers already emerging in China – stands to benefit the UAE quickly & substantially. Business links with Asia have grown substantially in recent years and the resumption of any sort of normality of trade with that part of the world will be a major boon to the UAE.
What is Government doing
The UAE authorities’ primary focus, at this stage, is on supply-side improvements. Banks, for example, have been given regulatory approval to reduce capital and LTV ratios to encourage lending to businesses and are also being encouraged to offer repayment holidays on loans, mortgages etc.
At a federal level, there have also been moves to offer rebates on customs duty and, the individual emirates have implemented a number of local initiatives to reduce consumers’ utility bills, eliminate toll gate charges etc.
As the UAE Dirham is pegged to the US Dollar, the economy has already benefited from the Federal Reserve’s move to 0% interest rates, although this hasn’t been uniformly adopted by all local lenders and in the inter-bank market.