Economies likely to see a U-shaped recovery post pandemic: FAB chief economist

Abu Dhabi: Economies recovering from the global pandemic will most likely take a U-shape trajectory instead of quick return to growth according to First Abu Dhabi Bank’s chief economist Simon Ballard, who also highlighted the risks of a second coronavirus wave with fewer options available to central banks and governments to respond with.

“It is FAB’s base case scenario that we will trend towards a shallow U-shaped recovery. That is the most sustainable path for recovery and the most healthy path for recovery going forward rather than a V-shaped recovery that would require us to relax many of the restrictions that have been put in place.

“If we get a second major spike… my major concern is that with interest rates of zero there’s very limited scope for central banks and government to react positively,” he added.

UAE bounce back

Ballard said the UAE’s non-oil economy was starting to see positive signs again after the big falls witnessed during the first half of the year, and in particular during the second quarter, with the country on course for growth in 2021.

“We think that we are going to see positive growth in 2021, the delay for EXPO 2020 for example, disappointing perhaps at the time, but understandable and highly positive in terms of the long term implications.

“That will create long positive growth during the course of early 2021 before the EXPO in the third quarter,” he added.

“And if it were to be combined and come at the same time as we start seeing more viable vaccine opportunities coming through, that put’s into a position of fairly robust strength to rebound in 2021,” he said, also acknowledging that there was still a long way to go and that any forecast for growth should be taken along with caution.

Real estate market

Commenting on the outlook for the country’s real estate market, which was already under pressure before the pandemic, Ballard said it was most likely that the commercial real estate sector would recover quicker than residential.

“Commercial real estate will come back as businesses start to kick back into action and the recovery starts to feed through.

“Residential real estate will perhaps lag back, and as far as retail is concerned, that will lag until we see a more significant return to tourists coming in; certainly into the Abu Dhabi emirate, the local population can only spend so much, we need tourism to come and drive consumption higher,” he added.

The change in working habits, such as working from home, will also be a factor in keeping commercial real estate prices down.

“There maybe a reluctance or a reduced need for us all to move into 100 per cent occupancy of our office spaces going forward,” he said. “And that again will be a natural damp on the demand on commercial real estate, which will limit the recovery of commercial real estate prices.”

Ecommerce

With the pandemic giving rise to Ecommerce, Ballard said that retail shopping in the UAE would still be dominant once the pandemic gives way due to the high influx of tourists.

“In Dubai we have tourists who go out and spend money, they’re not coming to Dubai to invest over the Internet, they want to go to the shopping malls and they want to spend money.

“Once we’ve managed to feel comfortable with infection levels [and they start] declining here in Abu Dhabi, they will be able to open up to get that tourist dollar, euro and pound into the economy as well, which will cushion the non Ecommerce side of business,” he added.