UAE Quarterly Review July 2020

The UAE’s non-oil private sector economy began to recover following the easing of COVID-19 pandemic restrictions. The PMI rose to 50.4 in June after being in contraction territory since February. The increase in PMI in July stemmed from new export orders and rise in output and new work. Emirates NBD reports that the unemployment rate continued to rise despite a surge in business activities, as private sector businesses seek to reduce operational costs.

Tensions between OPEC and Russia coupled with collapsing demand due to the national government and internationally enforced restrictions on movement amid the COVID-19 pandemic resulted in a sharp fall in oil prices. However, oil prices recovered some ground in June as OPEC and Russia agreed to an extension of oil production cuts and the re-opening of global economies promoted growth to an industry that had suffered one of the most volatile periods in its history.

According to the World Bank, the UAE’s economic growth in 2020 is subject to major uncertainty due to COVID-19 pandemic restrictions and low oil prices. The IMF revised the GDP growth to -3.5% for 2020 as travel restrictions hit the tourism sector and social distancing continues contract domestic consumption. The global slowdown and disruption within the supply chains heavily weighed on non-oil revenue and the postponement of EXPO 2020 put additional pressure on economic growth for this year. MEED reports UAE awarded $888m worth of contracts last quarter in comparison to $6.899bn awarded last quarter.

AECOM’s TPI forecast for July 2020 contracted by -1.4% between Q1 and Q2 due to the reduction of commodities. It is expected that the COVID-19 outbreak will continue to impact the tender price index for the remainder of 2020 which will be tracked in subsequent quarters.

The UAE Tender Price Index is AECOM’s assessment of construction tender prices in the UAE. It is compiled by AECOM’s Middle East Business Intelligence team based on actual returns of projects. It is based on new build and refurbishment projects across a variety of construction sectors and covers all emirates of the UAE.

The Index is therefore a measure of average price increases across differing project types and locations. It should be regarded as a guide only when looking at any specific project, as the pricing of individual projects will vary depending on such factors as their complexity, location, timescale, etc.

The relative cost of construction in the Middle East is based on typical build costs in USD. High and low cost factors for each building type have been calculated relative to the UAE (Dubai), where average costs equal 100. The relative cost bars plotted in the chart represent the average high and low cost factor for each location, based on the costs of the buildings included in the sample (excluding commercial fit-outs